Deputy FitzGerald is in possession. He has an hour-and-a-half.
Financial Resolutions, 1982. - Financial Resolution No. 6: General (Resumed).
Debate resumed on the following motion:
That it is expedient to amend the law relating to customs and inland revenue (including excise) and to make further provision in connection with finance.
—Minister for Finance.
Speaking on the budget here today I start by nailing the carefully nurtured untruth that what endangers the Irish economy today is imaginary damage alleged to be done by telling the electorate that problems exist and are being tackled visibly, rather than the failure to face properly the serious problems besetting us. The attempt to brush our problems under the carpet in the hope that those looking in from outside will not see them is absurd and the assumption of ignorance and stupidity on the part of those who lend us money and of other bodies such as the European Commission is naive beyond belief, or would be naive if those propounding the deceit believed in it. A volume of fact and informed comment is available to financial institutions abroad. It comes from a variety of sources around this country and from many independent commentators whose views appear in print in public and are widely circulated. Also, privately circulated expert commentaries are available to the various institutions which lend us money. International bodies such as the EEC and the OECD have a capacity to assess the economic situation in a country like ours, and specialised journals like the Institutional Investor are there also. None of these rely on politicians' statements but on hard-headed assessment of the facts. Reactions from such sources have been very unfavourable since election day.
An idea is being propounded by the Minister and others that if we kept silent in this House and outside it on the funny money aspect of the budget, investors, the European Commission, the OECD, the IMF and other such bodies would not notice the bringing forward of something like £165 million to next year. This attempt to fiddle the figures may be designed to mislead public opinion here, but the suggestion that people elsewhere would be fooled if we did not mention it will certainly be greeted with raised eyebrows in Brussels, Washington, Paris and centres of finance like London and Frankfurt where our affairs are followed very closely indeed, as I have immediate reason to know in view, for example, of comments volunteered to me in Brussels yesterday which show that no one there is under the slightest illusion about the reality of this budget. It did not require me to say anything on the subject; I had only to listen.
The Government know as well as I do that bodies like the European Commission are not blind but are well aware of just how phoney this budget really is. Last year the European Commission indicated clearly and publicly what kind of targets we should set ourselves in terms of borrowing and the current deficit — 13 or 14 per cent of GNP for borrowing and about 6 per cent for the current deficit. They were satisfied while we were in Government that these targets would genuinely be aimed at and genuinely achieved. They refrained, therefore, from adding to their public indication in their printed documents any direct communication to our Government on this subject. Such a communication there is reason to believe, would have been received had it not been clear to them that our Government were tackling the problems and would in the budget realistically set out to secure the targets they mentioned. Reassured by the firmness with which we were tackling these problems, they were prepared to leave it to us to do so and no communication came to our Government such as was received last year by the Belgian Government. It remains to be seen what the reaction will be in respect of the budget now before us, but I have to say that from what was volunteered to me yesterday in Brussels there is a very clear perception and deep concern that a phoney budget has been brought in which does not measure up to the targets set and which is designed to cover up that fact.
The impact of this on confidence could be serious and I wish to nail the suggestion being put around by the Taoiseach, the Tánaiste and others that all would be well if we remained silent and did not criticise the policies of this Government. I hope there is nobody so unsophisticated and naive in this House or outside it as to believe that the rest of the world is not watching what is happening here. The headline in last Friday's edition of The Guardian about the ailing punt is an indication of public concern. That concern is much greater and more evident when one moves behind the scenes to the more specialised commentaries and commentators and the institutions concerned with the question of lending to this country and the viability of our economy.
While the present Government have accused us, their predecessors, of having been concerned with balancing the books rather than with human needs, the reality is the opposite. It is they who have shown a preoccupation with getting the books to look respectable on the surface, regardless of the effect that this kind of financial fiddling will have on the human needs of our people for jobs and for sustained hope in the future. Our whole concern was to take the action necessary to stave off the dangers to jobs and living standards when we took office on 30 June last, dangers which threatened our ability to continue borrowing for employment-giving investment purposes. These dangers were posed by the looming 1982 deficit of almost £1.4 billion unless action was taken and the threatened level of borrowing of £2.5 billion. It is figures of this magnitude in relation to a country with a GNP the size of ours which are disturbing people abroad and their concern is now increasingly evident.
We were not the ones preoccupied with book-keeping. All our figures were straightforward and above board. It was the Fianna Fáil Government who, in the 1981 budget and in this budget were concerned with doctoring the figures to make them look well, regardless of the effect on our future. The action we took was designed to protect employment, which depends upon our being able to continue borrowing for investment primarily for employment and also designed to yield some financial return. It was our concern that our capacity to do this was prejudiced that left us with no alternative but to take the action we did to ensure the preservation of employment. It was the preoccupation of the previous Government with book-keeping in 1981 that led them to pretend to think that they could allow the level of deficit in borrowing to happen as long as they could write down on paper at the beginning of the year figures in the Book of Estimates which were not realistic and which had been altered from their true level by an arbitrary process.
In January of last year, after the Barrettstown Castle meeting in December, a figure of £113.2 million was knocked off the figure which had been arrived at during that meeting, even though the earlier figure was already visible unrealistic in the light of subsequent events. This £113.2 million was knocked off the Barrettstown Castle figures by round cuts of, in most cases, between £5 million and £20 million on particular Votes, although no action was taken subsequently to implement those cuts. This arbitrary reduction of a notional character to bring down the budget deficit from £628 million — although that was not anything like a true figure — to £515 million, together with the massive subsequent authorisation for additional expenditure over and above the Estimates, much of it before and during the June election campaign, meant that within six months the realistic figure facing the incoming Government was a deficit of around £950 million, a discrepancy within half a year of no less than £435 million. From these benches we pointed out at the time that there would be an overrun of a considerable magnitude because the individual Estimates for many of the Votes were not credible, involving as they did cuts in current money terms where no policy decisions had been made to cut the real level of spending. Until we saw the books nobody outside the intimate circles of Government believed that the figure would turn out to be more than about £800 million, that is about £150 million less than the actual figure facing the new Government last June. Even we did not think badly enough of Fianna Fáil to imagine that they could deliberately have allowed things to go so far.
This is above all an anti-business budget, brought in at a time when employment-giving business is in grave difficulties already and needs to be sustained rather than undermined. This character of the budget owes much to the desire to secure power in the general election at all costs, regardless of the damage to our economy, and owes something also to pressures from the extreme left of our political spectrum, to which the Government ceded in order to secure their votes in this Assembly.
The immediate damage done by this attack on the employment-giving business sector is all the greater because, coming at a time when available credit is already reduced in real terms for the first time, it risks aggravating a credit squeeze that already threatens tens of thousands of jobs this year. This budget is thus as much anti-labour as it is anti-business.
Let us be clear about exactly what is involved, drawing on the most authorative estimates now available. The credit increase permitted this year by the Central Bank is expected to be less than last year, perhaps 15 per cent as against 19 per cent. The increase in credit on that basis would be around £950 million. If out of this figure something like £165 million has to be set aside to finance VAT on imports and the advance payment of corporation tax, the increase in credit available for the business and farming sectors — all sectors of the economy other than Government — would be only £785 million, an increase of 12½ per cent. The expected inflation rate post-budget year on year is 17½ per cent. This means, for the first time in my recollection, which goes in economic matters for quite a while, the real volume of credit available to the private sector in real terms is being cut significantly at a time when already liquidity is very tight. There was no increase in credit in real terms last year. The increase merely matched the inflation rate and did no more than that. If, after a year in which there was no real increase in credit, you have a reduction in credit to the private sector, partly because the Government are taking so much that the residual left to the private sector even before this budget would have been less than the increase in inflation and partly because the budget takes back another £165 million to finance the advanced payments on imports, VAT and corporation profits tax, it means for the first time a significant drop in the real volume of credit available to the private sector. This puts thousands of jobs under threat over and above those already under threat. It has been suggested by the Minister for Finance that this could be alleviated by the Industrial Credit Company but any significant moves in this direction would involve a further increase in public sector borrowing, which would be incompatible with the stated aim of protecting the currency. I shall come back to that point again. If there is one thing I would like to draw out of this debate, if the Minister would tell us, it is how much does he propose that the Industrial Credit Company, borrowing abroad outside the Central Bank guidelines, which they alone are entitled to do for business purposes will provide of the £165 million which business now has to find?
We are entitled to know that. It is impossible to make any judgement on the budget until that is known. At one extreme if the ICC were to provide it all then the impact on business would be much reduced and would involve more interest payments. That would mean additional foreign borrowing by a State agency of £165 million, substitution for Exchequer borrowing, another clever bookkeeping transaction but that would involve a major breach in the borrowing targets and which, if it were proposed, would certainly weaken whatever confidence is left in the Government's financial credibility.
On the other hand, if the Industrial Credit Company do not play any significant role, and the logic of the budget is that they will not, then the impact on business will certainly be very drastic because the volume of credit available will be down by a significant amount in real terms on last year. On the assumption that the latter is what will happen and the ICC will not play a significant role, because to do so would involve a serious breach of the overall borrowing limits and an evasion of those limits by transferring Exchequer borrowing through business to the ICC, on the assumption that that is not intended because of the damage that would do to our standing financially in the world what would appear to be the logic of this move is the sudden adoption of monetarist policies, of controlling the economy and securing deflation by cutting credit at the expense of employment.
That this may be the significance of this budget would not appear to have been grasped by some Deputies who voted for the budget on the somewhat simplistic basis that it provided, among other things, £50 million more for construction and would thus help employment. What use is it giving £50 million more for construction if the rest of business is cut back by £165 million? For every job gained three would then be lost. That is the logic of the budget if it is carried to its logical conclusion and if the Government are serious about not increasing real Government borrowing from abroad by diversionary tactics with the ICC—I am giving them credit for being serious about our economy — by this expediency they will have decided, instead of adopting the measures we adopted, fiscal measures through taxation, which can be directed specifically in ways which minimise the impact on employment, to adopt a monetarist policy of doing it by the blunt instrument of a credit squeeze, whose impact on jobs would be very large and, because it is such a blunt instrument, the impact would not be capable of being controlled or limited in any way. I will come back to that again in relation to the question of the currency for which we have to know more of the Government's policy at this point.
I want to stick to dealing with the funny money aspects of the budget. I want to say with respect to the deal with Deputy Gregory, its nature, extent and the effect on confidence abroad as well as at home, that it has been greeted with incredulity and dismay in financial centres ranging from New York to Frankfurt. Our party, while recognising the reality of the inner city problems raised by that Deputy and indeed his sincerity in raising them, and while being willing to incorporate in our second budget recognition of these problems within the budgetary constraint of attaining the £715 million current deficit target without resource to funny money and sticking to the borrowing limit, we were not prepared to make the kind of promises apparently needed to secure his vote.
These promises involved going beyond the limit of what could be done in 1982 without further endangering seriously confidence in our economy and indeed the type of deal negotiated in return for a single Independent vote has cast serious doubts on the ability and willingness of our political system to handle our economic problems. I want to emphasise this point. In our alternative budget, which we would have presented the Friday after the election of the Taoiseach, had we won that vote, we were prepared to make provision for a net £3.35 million additional current expenditure and for £50 million additional housing expenditure. We were going to provide these out of additional current revenue so that the level of borrowing would have been maintained and the current deficit actually reduced by financing that housing expenditure out of current revenue, which would have brought the current deficit down to £700 million and left the borrowing figure unchanged. We were prepared to do that but we were not prepared to go beyond this or do anything that would jeopardise the borrowing limit.
That is why we are in Opposition today. We are in Opposition but at least we have retained our credibility. We can face the electorate at any time, having remained consistent in our stance as to the level of the current deficit in borrowing, from which Fianna Fáil have departed in a wholesale manner to buy their way back into office. Moreover, in relation to another question that arises, in connection with the question of an alternative budget, the revenue to replace tax on clothing and footwear and the restoration of subsidies, moves which were required in response to public reaction during the election campaign, I have to say in our alternative budget we prepared ourselves to find this revenue by other means. Some of these means would have been, objectively, less progressive than the rejected clothing and footwear tax. I have to say that because, while this tax aroused great emotion during the election campaign and genuine concern on the part of many people at the doorsteps, as canvassers of all parties found, the reality is, as is shown conclusively by the 1979 household budget inquiry that the spending on clothing and footwear rises totally disproportionately with income and taxation in that area is progressive in the sense that it hits much more heavily people on high incomes than on low incomes. It is far more progressive than taxation on cigarettes, far more progressive than taxation on beer in terms of the impact on families on different income levels. It has the disadvantage that clothing expenditure at the lower income levels is not optional as in theory cigarettes and beer are, although whether the reality is the same for the many individuals concerned as regards the option is a matter that we might all debate.
We accepted the verdict of the public that while it could be shown objectively that taxation of clothing and footwear was more socially progressive people did not want it. Therefore in our alternative budget we had proposals for taxation which would not have been as progressive because public opinion required us to move away from the concept of progressive taxation but would have yielded the revenue necessary to maintain the deficit at £750 million. There never was nor could there have been any question about departing from that and our credibility stands on that and this Government's credibility falls because they were willing to depart from it on a massive scale.
I assert that just as the 1981 budget was non-credible because it presented a deliberately understated view of current spending and the resulting current deficit so also this budget is non-credible for a number of reasons. First, and this point I think has not been made elsewhere because some of the facts are not widely known, the budget contains a phoney element in the form of the exclusion of £14 million of additional expenditure needs which arose after the January 28 budget was prepared and were notified by the officials concerned to the Government after the election. But the budget does include £28 million of additional revenue from An Bord Gáis, the existence of which the Government had not been notified by 28 January and which came to light subsequently. As the same officials are advising the present Minister as advised our Minister for Finance I am not prepared to believe that they drew to our attention additional expenditure that had arisen in the interval of the election and that they told the Government all about additional revenue. In our case they told us about both. It is clear that the Government knew that within that interval additional expenditure had arisen.
I shall mention the main items. They were, first, the cost of snow clearance. We knew on 28 January that there was some cost but no figure had been ascertained; in the interval, a figure of £4 million emerged and that was presented to us when we came back and in our alternative budget we had to incorporate that. It was understood that it was going to be met and that is not in this budget. Although it was known to the Government they have not provided for it.
Next, as a result of the Supreme Court decision handed down after the election the cost as far as could be estimated— the estimates are true and probably are under-estimates but they are there and were given by officials and are ones which unless we can show that they are in question are widely accepted — they told us that whereas we had provided £6 million for the subsidisation of tenants on the assumption that the Supreme Court would uphold our legislation but following the Supreme Court decision handed down after the election the cost of subsidising rent restricted tenants would be at least £13.5 million. They told us that £7.5 million more was needed. We made provision for that in our alternative budget but it is not in the budget presented by the Minister to this House.
One of the most obvious items, small though it is — although I notice that items smaller than it appear in budget tables from time to time — is the cost of the election itself and it is omitted. We got the bill for the election when we came back and it was £0.85 million and it went into our alternative budget. I see the Minister shaking his head but I did not see it in the budget tables. It may be hidden away somewhere. I have to say that the presentation of the budget this time was the most unsatisfactory I have ever seen. Part of the reason for that is that it was a unique situation that the Minister was facing, introducing an alternative, supplementary, revised budget, and various presentations were possible but the one he adopted was both thoroughly confusing, different in presentation when it came to the expenditure side in terms of how the changes in the previous budget were shown and, in respect of some items, obscure because there are items in the tables at the back which are not explained in the speech in a way I have never seen before in the case of a budget. Even within the limits of the problem imposed on the Minister by having to produce a budget of this kind it was seriously defective in clarity. There are things that remain obscure which I hope will be clarified in this debate.
There is no apparent provision in the budget from these items — there is one other item — totalling £14 million — which we were told after the election we would have to provide for if we had an alternative budget. While they are apparently omitted — they are not mentioned anywhere in the budget speech or included in the budget tables — the Minister was glad to accept the additional £28 million of An Bord Gáis revenue presented to him as something which turned up since our budget was prepared. That kind of selectivity, accepting additional revenue but excluding extra expenditure is one of the things which makes this a phoney budget. The Bord Gáis revenue arises from an increase in the profits available over and above the amounts to be ploughed back, £50.9 million in the pipeline investment, and the increase in profits arose from two things, increased uptake of gas by the ESB and a small price increase to the ESB by An Bord Gáis. The Minister is entitled to take credit for that. It had not come to the notice of the Government at the time the budget was prepared and we did not have the benefit of it. The Minister had the good luck to come in when the figure was available to him and is perfectly entitled to have the figure in his budget but only if he also took account of the £14 million of additional expenditure that arose in the same period. That he did not do and for that I would fault him.
Secondly, the budget is totally distorted and the current deficit shown is misleading because this Government have chosen to replace real and continuing increases in revenue and cuts in spending by a tax on business which, while it will have a continuing impact on that sector, provides only once-and-for-all assistance to the Exchequer so that within a very few months the current deficit will be running at a level of about £200 million or one-quarter higher than the current deficit proposed in the January budget. That is the reality. When the once-and-for-all transaction is completed and business has forked out the additional money and it is in the coffers for 1982 — that will happen within a couple of months under the VAT system — from then on the current deficit will be running at a rate £200 million greater than that proposed in the January budget, arising from the decision of the Minister and the Government — as announced in the election, it must be said — to restore food subsidies, abolish taxation on clothing and footwear and abolish taxation on short-term social welfare benefit and decisions in the budget to incur additional expenditure as set out therein against which very minimal new sources of revenue are set out in the opposite column. The net effect is of the order of £200 million of deterioration in the real deficit leaving aside this once-and-for-all assistance that the Exchequer will get at very high cost to business and to jobs.
There is a figure of £45 million for buoyancy in this budget. I would be prepared to believe that this figure would be valid, as the Minister may well have been advised, if the cost of VAT on imports and the corporation profits tax brought forward were to be completely financed by the ICC — if that were the intention. I think it was assumed that this must be the case because the additional borrowing abroad involved there would be incompatible with protecting our currency, an aim to which the Taoiseach has properly committed himself in New York. If the ICC were to finance these savings completely, then I think the other measures in the budget could yield £45 million and I suspect the £45 million has been calculated on a basis that does not take account — it is very difficult to calculate — of the impact on the economy of taking £165 million out of the business sector through these two measures. The calculation of buoyancy would seem to be based on traditional methods and it may well have been very difficult to calculate what the effects would be especially with the very tight time-scale available on the buoyancy of revenue of taking this sum out of the business sector in such a short time. The buoyancy is only compatible with the assumption that this will be completely financed by the ICC and that is not compatible with the assumption that we are going to protect our currency because it would involve such a very high level of borrowing.
The point I wish to make on the buoyancy figure is that although the Minister is right in saying or having it said on his behalf that it is an official figure, it is not one that stands up unless one examines the assumptions on which it is based and unless we are told how the calculation was made. I invite the Minister to lay the details of that calculation before the House if he expects us to accept that it is the likely figure. That will require him to do what is essential to any understanding of this budget: to say how far the ICC are to go in financing this extra £165 million to be taken from business.
The overall effect of the budget strategy is to postpone the problem of dealing with our financial crisis to 1983, just as in early 1980 it was postponed for a year-and-a-half until after the June 1981 election. Thus, even if this Government proved capable of facing up to our problems in 1983 — of which we have not the slightest indication — they would have postponed the issue in all for three years and would have postponed by the same period our recovery from the crisis into which the post-1977 Fianna Fáil Government drove this country. At the same time, while further postponing action to deal with the crisis the Government have, by the manner in which they have done this, gravely weakened our financial credibility.
The impact of this weakening has been seen since the day of the general election. On that day the financial markets began to be seriously disturbed at the prospect of a Government committed to undermining the budget strategy we had set out, likely to come into power. A widespread belief emerged in financial circles on that day and thereafter, that the kind of policies likely to be pursued by the Fianna Fáil Government would push us towards a devaluation of our currency. This is not a view I share, but that is how the markets reacted — the prospect of a Fianna Fáil Government meant a devaluation. The effects of this belief have since been seen in a major swing away from foreign borrowing and towards borrowing in Irish pounds for fear of devaluation. As I understand it, a major contribution to this swing has come from semi-State bodies. Their switch from foreign borrowing to domestic borrowing was one of the primary factors in creating pressures on liquidity at home because of their fear that they are overextended in foreign borrowing and that devaluation will follow. What kind of Government have we when their State enterprises have so little confidence in them that they believe a Fianna Fáil Government would lead to devaluation? As I said, the effects of this belief have been seen in the impact on demand for scarce domestic credit which has pushed up interest rates by 1½ per cent to 2 per cent.
We have heard some Deputies asking the Government to do something about this situation — to subsidise interest rates. There seems to be an extraordinary lack of perception on the part of those Deputies that in voting for this Government they voted for higher interest rates. Interest rates are not determined by bankers suddenly deciding to increase the rates to make a bigger profit. The market is highly competitive. Given the number of institutions involved — the Central Bank seems to believe there are too many, that it is too competitive and that no more should be allowed in — it is one of the most competitive money markets in this country. What puts up interest rates to the borrower is the interest rate that has to be paid by the lender. What happened on the day of the election and thereafter was that so many people feared devaluation would be brought nearer under this Government that they switched to domestic borrowing and the limited store of domestic credit was under great pressure. Because of greatly increased demand for domestic credit interest rates were forced up by supply and demand.
The responsibility for that rests fairly and squarely on the shoulders of this Government, and the author of the alternative budget was the Minister for Education who, for the second time in his career, led a Fianna Fáil Government into a course of action which was disastrous for the country. His advice in 1977 as now, was falling on willing ears.
The situation created in financial circles by the fear of devaluation has not been eased following the Taoiseach's New York assurance that his Government would not devalue the Irish pound. I am glad he made such a firm statement, but he faces a credibility problem. I do not mean the he personally is facing a credibility problem, but simply making such a statement abroad raises a doubt about whether it will happen. All devaluations have been preceded by announcements that they will not take place. The President of Mexico announced that the peso would not be devalued, but it was shortly afterwards. The Taoiseach's assurances have not eased the situation. There has been no easing of interest rates here; no signs of relief breathed in the markets by our semi-State bodies or by private interests seeking money; no tendency to look more readily abroad to the deutschemark in confidence that all is now well. If that had happened interest rates would have been eased, but they have not. The damage being done by higher interest rates is the direct result of the prospect of this Government coming to power and later the reality of a change of Government.
The impact of this budget on the process of reducing our dependence on borrowing to pay for current spending through the current budget deficit may be summed up as follows. The previous Government's policies would have reduced by £600 million the 1982 deficit left by Fianna Fáil. This would have left an opening situation for 1983 which, so far as one can estimate, would have required measures only half as severe as this, namely, the finding of perhaps £300 million through cuts in spending or extra taxes in order to attain a target of reducing the deficit in terms of a percentage of GNP by a further quarter in that year. What we proposed to do would have meant that the bulk of the effort and sacrifice would have been in 1982. In 1983 we would have had a budgetary situation which was greatly eased, although there would still be a problem, as there is in most years of finding the initial revenue, but one which would have been only half as serious because we would have done so much of the job in 1982 and we would have been able to take advantage of any recovery in the world economy.
On the other hand, the new budget reduces the 1983 deficit left by Fianna Fáil not by £600 million but by only £400 million, once the temporary "funny money" is taken out of the calculation. What is left to achieve the target I mentioned — a further one-quarter reduction in terms of a percentage of GNP for 1983 — would involve a take of around £500 million in the 1983 budget. If our budget had been carried through it would have meant a budget only half as severe for 1983, even seeking to reduce the deficit further. To achieve the same target now, Fianna Fáil would have to have a worse budget in 1983 than in 1982. If one takes the July budget and the Fianna Fáil budget together, one realises that they are pretty severe. The fact that we face a more severe budget in 1983 is a measure of the damage done by this Government and the extent to which they are pushing things forward regardless of the consequences. Instead of tackling the bulk of our problems now and leaving room for a 1983 budget which would have been compatible with the policy of seeking to benefit from an expected recovery in world trade that year, we are now faced with the prospect of an even more severe budget in 1983 than those of a July 1981 and March 1982 combined.
Our strategy had been precisely that, to get the worst behind us, with the backing of public opinion, which, to a remarkable degree, has accepted the need for action; and then in 1983 to be able, with the prospect of the favourable impact of lower oil prices and of much faster growth in world trade, to be in the position of not having to have such a severe budget in 1983 and as a result of being able then to take advantage of this improvement, to expand our economy and bring unemployment under control. That prospect has been lost because of the actions of this Government unless of course they intend postponing tackling our problems still further when 1983 is reached and I would not put it past them to do so should they still be in office at that time. If that were to be attempted I would not consider the prospects to be very good in terms of our borrowing abroad.
I accept the Taoiseach's New York statement that the new Government intend to defend our currency as we did. This, of course, involves maintaining as our Government maintained on two occasions the value of our currency in the event of EMS realignments in the future. The House will take it that, unless there is a statement to the contrary, that is what the Taoiseach means. If there is a realignment, as on the last two occasions in which we were in Government, our currency will not be devalued within the EMS. If that happened it would have to be seen as a failure by this Government to maintain our position and as a going back on the Taoiseach's New York statement. We will watch carefully to see what happens in the circumstances of any further realignments. Failure to maintain the position as we maintained it would represent a most serious defeat for the Government's approach to our economy and would risk setting off a renewed cycle of inflation, if we got into the devaluation bracket, with increased prices for imports setting off new demands for wages at home.
But in logic such a policy can only mean that, having failed to take the necessary fiscal action in the budget, by dropping some £200 million of potential revenue or potential expenditure cuts, the Government intend to deflate the economy by the much cruder weapon of an intensified credit squeeze. In other words the Government do not intend to have significant resort to the expedient mentioned as a possibility in his budget speech by the Tánaiste of bypassing the Central Bank's guidelines by using the Industrial Credit Company to borrow abroad.
Such a substitution of a monetarist policy of an intensified credit squeeze on industry, for the more carefully timed fiscal approach of the previous Government, is a mistake, and will have a far greater effect on employment, which has now been downgraded by the Taoiseach in his Cork speech to take second place to inflation — despite the subsequent Brussels rhetoric. But it is the choice that this Government have now made as to how best to defend our currency, on the assumption, in respect of which one must at this stage give them the benefit of the doubt, that they are serious in this purpose, and that they understand what they are doing. However, this is the choice that the Government have now made as to how best to defend our country. They have chosen to do so by a monetarist approach, by squeezing credit. We accept their decision and expect them to live up to it.
Let me sum up at this point. Our strategy was to get behind us, by January 1982, half of the corrective action required, thus reducing to a manageable level the measures that would be needed in subsequent years, in order to phase out the current deficit and concentrate our borrowing capacity, and especially foreign borrowing, on actual investment that would yield a return in jobs, and, as far as possible, in revenue also.
This strategy received widespread acceptance. It was indeed paid lip service to by Fianna Fáil during the election campaign, from the point in time where the present Minister for Education and others secured the reluctant assent of their leader to this approach, until the publication of the phoney "alternative budget" on the Friday before election day, which revealed that Fianna Fáil's real strategy was to escape from these constraints by the discredited expedient of bringing back revenue from 1983 to 1982.
Now this Fianna Fáil strategy has been expanded to include, not only the application of VAT at the import stage to consumer goods for domestic use — which might have been justified — and to materials imported for processing into goods to be sold here, but also, contrary to specific assurances then given, its application to imports of goods for processing for re-export — a step that will seriously damage the whole of our export industry.
I want to highlight that fact because they have gone far beyond what in their alternative budget they said they would do. What they said then would yield £45 million will yield, as revealed here last week, £140 million. That represents a totally different and much more drastic policy. Part of the difference, if not a great part of it, lies in the decision to apply VAT on imports of goods to be used for processing for export. This will place a burden on our export industry. All the talk at the time at which the alternative budget was presented about drawback arrangements and about exempting export industries has gone by the board. Faced with the reality of the budget the Minister found it necessary to extend the scope of this tax on business to export business, regardless of the damage that it would do to our export industry. That is one of the most serious aspects of this budget. It was something that the people had no reason to expect having been promised by Fianna Fáil that whatever they would do they would not tax the export industry in this way, Everything that follows from that in terms of the impact on our exports and our balance of payments as well as on unemployment in the export industries derives directly from Fianna Fáil's decision in Government to do what they said on the Friday before election day they would not do.
At the same time the Government have increased by about £225 million the 1983 deficit, by higher spending and reductions in taxation, so that instead of that budget involving relatively moderate increases in taxation and cuts in expenditure, on about half the scale of those since July 1981, it will have to be more severe than the steps actually taken since last July, if the aim of phasing out the current budget deficit is to be adhered to. From the general wording of the budget speech it would appear that the Government wish us to believe at least that they intend to adhere to that policy.
The policies of the new Government are, for the reasons I have stated, seriously damaging to the economy and to the prospect of securing a recovery that would halt and reverse the rise in unemployment. They are seen as such by independent observers, and by the financial markets upon whose assessment of our situation and of the effectiveness of our Government's approach to our problems the availability of credit on tolerable terms and the value of our currency ultimately depend.
Let us for the moment make the favourable assumption that the abandonment of the commitment to bring the underlying rate of current deficit down to just under 6 per cent of GNP, in line with the target publicity set last year by the EEC Commission, does not evoke a negative reaction from the Commission that could further damage our credibility, and that the Government manages to get as far as the next Budget without incurring for our economy further penalties, whether by way of further increases in interest rates, or other borrowing costs, by way of loss of confidence amongst leaders to the State, or by way of additional pressures on our currency. Even for these favourable assumptions two things follow from this budget: first, that the prospect has now been greatly reduced of our being able to face into a possible world recovery next year in a condition that would enable us to take advantage of such a situation, rather than having to deflate our economy sharply at that point because of postponement of necessary action at the present stage and secondly, that the effect of this budget has been a severe loss of what might be called psychological momentum as a result of the change in policy since January, when our people were prepared to accept severe measures in order to get our economy into shape to benefit from better conditions in 1983.
It will not be easy to recover this lost psychological momentum. By his failure to fulfil the promise of action in 1980, and by second failure in this budget to face the issues, the Taoiseach could scarcely be worse placed to call forth from our people the acceptance of the need for stringent financial measures in 1983, which his Government's budget has now made necessary.
What kind of credibility, would he have if, ten months hence he finds himself having to tell the people: "I know I told you in 1980 that drastic action would have to be taken, but I did nothing. I know that when I came into office ten months ago I cancelled out the steps proposed by the previous Government to straighten out our finances and to give us the room for manoeuvre that we needed in order to benefit from a world recovery in the years ahead. But now I have to tell you that you are not going to be able to benefit from this recovery, because the action I twice put off has to be taken now, whatever the effect on our chance of benefiting from the improvement in the world economy?"
Frankly I find it hard to see — and everyone in the House will find it hard to see — a Taoiseach who was not prepared to act with a majority of 18 in 1980, or in March 1981 when the ground had been prepared for him by his predecessors whom he could attempt to blame for the toughness of the measures taken, being suddenly spurred into action in January 1983, dashing the hopes of our people that at last they might benefit from improvements in the external environment.
We are now operating under the weakest Government this country has ever endured — a Government with a proven record of unwillingness to tackle our problems, and an unrivalled record of seeking to obscure and postpone them. They are a hand-to-mouth Government, living from day-to-day, kept going by the same hope that led them in June 1981 to gamble on an election before they were found out. This time if they bolt to the country because for the second time they cannot face the problems they have created, they will receive an unmerciful response and reception from an Irish electorate who were not fooled in June 1981, who largely accepted the need for tough measures in February last, and who certainly will not be fooled in the same way, by the same party, led by the same Taoiseach in a third election.
For the moment, Fianna Fáil are in office, and those in this Dáil who put them in are not likely to put them out in office, and those in this Dáil who put them in are not likely to put them out in the near future. The Government have gained a respite but, because they have failed to use this in order to solve the problems which, in office previously, they created, they are basically in a highly insecure and vulnerable position. They are faced with a choice between attempting to hold the situation and to act very belatedly in January 1983 — in a manner which may not command the same support from those who voted in favour of this budget — or to try then a further postponement of the day of reckoning at the cost of provoking a financial collapse or, alternatively, to bolt to the country with the admission that they cannot for the second time face the consequences of their own actions.
They have been led into this trap by a leadership which has certainly had no regard for the national interest, but which also views the Fianna Fáil Party's interests in an extraordinarily short-term light. We shall watch and wait. The seeds of self-destruction are implanted deep in this Government. When the time comes we shall be ready to take on the Government in a contest which, even more than that of February last, will be one of credibility, no tattered shreds of which will then hang around the present Government's battered image.
Until that point comes we shall criticise and oppose, but always on the constructive basis of offering an alternative course, which, indeed, we traced out in Government and which will offer our people an eventual way out of the crisis in which Fianna Fáil have enmeshed us all.
A Leas-Cheann Comhairle, I think there is agreement on all sides of this House on the nature of the tasks to which this budget should have addressed itself. I will sum up these tasks under three headings: (1) The introduction of measures to secure and expand employment in the medium and long term; (2) To bring order into the public finances; and (3) To promote equity in the tax system and specifically to assist low-income families.
The budget fails on all three counts. It hinders employment and will go down in history as one of the most anti-industry and anti-jobs budgets ever. It brings forward corporation tax and industry's value-added tax payments to the tune of £176 million, the result of which will be a critical liquidity crisis in industry and an acceleration in job losses.
It is clear that this Government are determined to impose such burdens on industry that new employment from the private sector will be non-existent. The public sector will not be untouched. The National Development Corporation is dropped and only £5 million is allocated for the National Enterprise Agency, instead of the £20 million allocated which I had secured for the National Development Corporation in 1982 which was designed to bring greater equity into the private and state sectors and to deal with the long-term aspects of unemployment. The Youth Employment Agency was a policy initiative to deal with its short-term aspects.
The Minister should immediately clarify the position regarding the allocation of Exchequer finance for State companies this year. The previous Government's budget allocated £90 million for this purpose and, during the election Fianna Fáil committed themselves to reducing this allocation by £30 million. In relation to facing the crisis in our public finances, the budget clearly indicates that the Government lack the political courage to meet this crisis head on. The budget postpones difficult decisions in contrast to the action taken by the previous Government supported by the Labour Party in their first month in office.
Thirdly, I find that there is no serious commitment to furthering equity in our tax system. To demonstrate that lack of commitment, tax credits will not be introduced, and the family income supplement to workers on low incomes is abolished. The Minister for Finance has introduced a budget which, on the face of it, accepts the basic economic argument that our balance of payments is out of line, our current budget deficit is excessive, and our foreign borrowing is threatening our economic independence. These were the economic problems which were met head on in the national interest by the Government in which the Labour Party participated. The Minister's closing budget deficit of £678.7 million in no way represents a real attempt to deal with the problem of the public finances. It is a budget which buys time and not much time at that, and buys it very expensively.
The Fianna Fáil Government are very recent converts to facing our economic realities. The previous Fianna Fáil Government resolutely set their face against dealing with the problems of the public finances and their impact on the balance of payments. They justified foreign borrowing regularly in the name of investment in productive infrastructure. What was ignored was that much of this foreign borrowing, in fact over half, was being used to cover day-to-day expenditure of the Government, which should have been raised from taxation, and indeed some of this productive infrastructure was highly questionable, such as the Knock Airport project.
When we came into office last June we immediately introduced a budget based on information supplied to us by the Department of Finance that the current budget deficit would reach £950 million in 1981 and the borrowing requirement would be almost £2,000 million unless we took immediate action. That was the scene set and those were the figures presented to us. We did not shirk the necessary action and we were derided and decried by the present Government, including the present Minister for Finance, for taking that action. We were told at the time it was totally unnecessary, that the economy — due to their Government's investment plan — could be put on a course for growth and that all was well; there was, in a word, no problem. That was the advice and attitude of their spokesmen. Yet the truth is there that the July 1981 budget introduced by us within a month of taking office introduced measures which, in terms of tax yield, brought an additional £450 million into the Exchequer in 1982 before any further budgetary measures adopted this year. That action of ours also introduced public expenditure reductions on the current side in 1981 which everybody now accepts has a positive impact on the deficit with which we are now presented by the Minister for Finance.
We reduced the current budget deficit to £802 million or 7.9 per cent of gross national product. In our January budget we proposed to take this down a further step to 5.9 per cent of gross national product or £715 million. I recall well that on the night of January 27 the present Minister for Education, Deputy O'Donoghue, described the Coalition Government's budget as a savage one. In point of fact the January budget proposed to increase the tax yield from value-added-tax by £163 million. This Government's budget proposes to increase it by £211 million.
The balance between direct and indirect taxation has been considerably worsened as a result of this budget in spite of what the Minister might claim in terms of social equity. However, the Government, as recent converts to facing economic reality, have not impressed international observers with this budget and the reason is obvious. As the Minister for Finance should know — and if he does not know at least the Taoiseach will be aware that this is the case — window dressing will never deceive the professional accountant's eye. If a business starts to lengthen the period for which it requires credit from its creditors and begins to demand early payment from its debtors, that is a signal which every accountant, investor and banker will take as a sign that the business is in trouble. In fact it is a sign that the owners are trying to hide the real operating position in the business. The parallel with Government accounting requires some qualifications but not all that amount of qualification. These facts of life that relate to the investor in the business sector also apply to the Government in the conduct of the public's business. But it does require some qualification. First of all, because of the size of the Government's revenue and expenditure, they enjoy a greater discretion on where they can raise their money and where they can spend it than does the average company. However, Government finances are not above economic laws, and ignoring certain economic facts as are ignored in this budget, leads on to greater trouble. When we talk of trouble in terms of a Government refusing to take action the chief suffers of the increase in the unemployment figures are the ordinary people or those who are at the receiving end of any major mismanagement of the economy by Government. The Government must borrow their money on the international and domestic markets. For that they must pay a real price, in other words, an interest rate. They must guarantee due payment of both the capital and interest on this debt. If the capital markets believed the Government could not meet their debt obligations the Government funding programme would immediately run into a crisis. Nobody is saying we have run into that crisis yet but we can say certainly that the actions postponed in this budget do not lessen the extent of the difficulties we are in and do not postpone the crisis we are facing.
I should like the Minister to consider remarks in the British newspaper The Guardian of Friday March 26 commenting on this budget which in its editorial asked: “How long will the international bankers go on bailing out the leaky punt?” It pointed out that the public sector external debt had grown from over £1,300 million at the end of 1977 to £4,640 million at the end of 1981 compared to external reserves of £1,473 million. The article went on to say that despite this rapid growth Ireland has enjoyed an excellent credit rating and self-evidently has had easy access to the international market. The article maintains that there is no evidence that this has changed but that yesterday — the day before publication of this article — there was an ominous sign. It says there were market rumours, unsubstantiated, of course, but reported on the agency tapes, that Ireland might have to reschedule its external debt. The article concludes that if that were to occur it would be inconceivable, whatever Mr. Haughey says, that the punt would not be devalued as part of the rescheduling package.
If there is any nervousness about the impact of this budget on the current budget deficit and our ability in future to borrow abroad, obviously it is based on the realisation that the £176 million which it is proposed be raised this year through the imposition of value-added tax at the point of importation and the bringing forward of corporation profits tax to the tune of £36 million will not be fully available next year. It is not talk that induces external nervousness in the credit situation of this economy, it is our actions and how we deal with our economy here at home; it is the facts and figures of a budget statement. These are the black and white factual matters which are examined in detail by foreign creditors. In other words, Government revenue must be increased from other sources of taxation to an equivalent extent if the current budget deficit in 1983 is not to escalate towards the thousand million figure that we faced last July. That was the figure we faced and which would have occurred had we not taken action.
In fact the opening deficit for next year — for what we can see of it — will be well over one thousand million pounds because £250 million will be required to pay the additional interest on the debt raised this year. In addition, a large part of the £176 million brought forward will not be available next year — because it must be realised that there is a £16 million subsidy to CIE which will have to be financed again — as well as the £23 million allocated for additional local services. The £45 million estimated this year arising from revenue buoyancy, due to the increased income available to private households, will not be available next year if the Government are to keep the deficit reduction on target. This can be financed only from either direct or indirect taxation arising in 1983.
The proposal to raise £140 million from value-added tax at the point of importation is a radical departure from that promised by Fianna Fáil during the election campaign. However, unlike the Minister for Finance, the previous Government were prepared to consider financing this change only out of revenues arising from the 1982 financial year. In Labour's proposals for our continued participation in government we would have retained food subsidies and not introduced VAT on clothing and footwear. We were not prepared to finance these changes by juggling figures on the balance sheet of the Government's revenue and expenditure account.
Turning to specific measures contained in the budget, I find the Minister's failure to proceed with the tax credit system a retrograde step and contrary to his statement that his objective was to reduce the current budget deficit and the overall Exchequer borrowing requirement while helping those least able to bear hardship. The Minister should have realised that those on incomes of £5,000 and who are single will have to meet a stiff additional financial charge of more than £200 this year compared with the previous Government's proposals of 27 January. In addition we have the abolition of the family income supplement for low income families.
The tax credit system contains within it the possibilities of integrating social benefits with the tax system and of providing a minimum family income which will eliminate the problems of the poverty trap for those on low incomes who are at work or unemployed persons who can get only low-paid employment. Of course here I am speaking of the possibility of introducing a negative income tax whereby the unutilised tax credits of those on very low incomes could be paid directly to those people to increase their take-home pay.
The imposition of an additional 2.75 per cent in the pay-related social contribution of employees is, of course, necessary to offset to some extent the very generous increases in social benefits introduced by the previous Government on January 27 and implemented by the Minister for Finance in his budget. These increases were necessary and, I believe, very welcome. The Minister is to be congratulated on implementing these proposals in full. However, in future years it is obvious that increases in social benefits cannot be financed from large increases in the PRSI contributions of employees. If we are to continue this trend it would be grossly unfair as it would be placing largely on the PAYE sector the burden of increasing in real terms the social benefits of those who are unfortunate enough to find themselves unemployed. While the increase in the PRSI contribution was not introduced in the budget itself, I feel it is germane to the question of the tax burden particularly on the PAYE sector.
My party will be examining the operation of the PRSI system with a view to introducing a progressive from of levy, if possible, rather than the flat rate proportional levy which presses heavily on those with low disposable incomes compared to those on relatively high incomes. Of course the PRSI contribution as a percentage of total income is lower for those whose incomes exceed the present limit. What basically is unacceptable to the Labour Party is that the burden which the community must accept in financial terms as well as social terms of carrying those who are unfortunate not to have work should be carried in the main by the PAYE sector.
In the area of income tax I am glad to see that the Minister has given a commitment to implement our proposal to introduce taxation of those who are self-employed on a current year basis in the 1983-84 financial year. We have a long way yet to go before we achieve real equality in the tax system; but I think it is fundamental that all incomes, earned and otherwise, are taxed on the same basis. There are of course administrative problems involved in realising this objective, but they must be overcome if we are to bring our economy out of recession and reduce our dependency on foreign borrowing and thereby rely more heavily on our own resources in the future. Without perceived equity in the tax system, the Government will be creating conditions for another revolt by the PAYE sector.
The public has accepted the basic argument of the Coalition Government that the overall level of taxation cannot be reduced at a time when we must reduce the current budget deficit so as to guarantee access to the necessary funds, both domestic and foreign, which are required for the development of our economy. In these circumstances what is required is that the burden of taxation be increased primarily in two areas, first, in capital taxation and, secondly, through an increased yield from those who are able because of the method of assessment of their tax to pay a considerably lower tax bill than people on similar incomes who are assessed under the PAYE system.
Based on the 1978 household budget survey, it has been demonstrated that the effective tax rate of the self-employed is approximately half that of employees on the PAYE system. What this means is that the PAYE sector is taxed in real terms at a substantially higher rate than their self-employed counterparts. For those on low incomes the discrepancy is even greater, with an effective tax rate of only 4.6 per cent of income for the self-employed earning under £60 in 1978, while those in the PAYE sector on a similar income had an effective tax rate of 15.5 per cent. These anomalies must be cleared up and greater equality and equity achieved for all those in the tax system.
The average worker is now fully aware of the discrepancies in the tax treatment of those who are self-employed and those who are employed. These discrepancies must be dealt with and I submit that the Minister for Finance has indirectly taken a retrograde step in this area of tax equity by not recognising the link between the yield in capital taxes and tax evasion. Action on both fronts is required.
With regard to the proposals of the Minister in connection with capital gains tax, while I commend his introduction of the higher rate of tax on short-term capital gains, I find it disappointing that he proposes to raise only an additional £2.5 million from capital taxes this year as opposed to the £6.5 million we proposed to introduce. Even when account is taken of the two months' loss of revenue due to the general election and the introduction of the Minister's budget, there is still a large shortfall.
A particularly conspicuous omission in the budget was the dropping of the tax on property held in discretionary trusts for the purposes of tax evasion. The tax was designed to get at income that had basically evaded the tax system and had been held in trusts for the purposes of avoiding tax. Needless to say most of these trusts are availed of by the wealthiest sections of our society. One wonders why that tax was dropped, particularly as the other measures in the area of capital taxation proposed by the Labour Party and introduced by the previous Government were accepted by the Minister.
In his budget statement the Minister said he considered our proposals with regard to discretionary trusts to be "insensitive and oversimplified". It is regrettable that the Minister could not have shown similar sensitivity to the susceptibilities of the PAYE sector who have now seen a significant policy instrument in the area of capital taxation abandoned. We have now the Minister's alibi for its abandonment. He says it will be now a matter to be considered by the Commission on Taxation. That is not good enough. In an earlier part of my contribution I said that by their actions in this area the Government may be creating conditions for the start of a new revolt by the PAYE sector.
I accept that the Minister for Finance is entitled to discretion in introducing whatever measures he sees fit in his budget. However, given the close result of the election, when neither the Government party, nor the parties of the previous Government gained an overall majority, the strange circumstances in which this budget came before the House and the great consultations that obviously had to take place leading to the presentation of the budget here, this omission is significant and lacking wisdom.
To finance the maintenance of food subsidies and the dropping of VAT on clothing and footwear I had sought further action in the areas of tax evasion and higher taxes on those who can afford to pay them. The Minister for Finance, on the other hand, has basically gone for an increase in indirect taxation which ultimately will mean higher consumer prices or, worse still, redundancies. If I could offer a word of caution to the Minister for Finance, these accounting miracles which characterise this budget, such as bringing forward revenue from one year to another, can only credibly be put forward once. The Government are to be congratulated, if that is the word one should use, in succeeding twice within the space of two years in financing part of their expenditure requirements by borrowing tax revenues.
These exercises in creative accounting, which are no doubt designed to please the backers of the Government, will only give the Minister a breathing space for a relatively short time. He must stand up before this House in ten months' time and confront the problem of the Government finances, our over-dependency on foreign borrowing and our balance of payments deficit next year or else completely abandon any attempt to get our economy or public finances under control with all the advance effects this may have on confidence in this economy abroad.
I would hope that the Minister would opt for the former course. However, I accept that he does not have total discretion in this matter and, as in June 1981, we may find ourselves involved in an enforced consultation with the people.
Some of the positive features of the budget which recognise the economic climate we are in and also make a contribution towards social equity are the limiting of mortgage interest to the standard rate of tax and the placing of a capital limit of £35,000 for relief on new mortgages. In time this will add additional revenue to the Exchequer and will remove one of the economic incentives for trading up which had caused serious distortions in the housing market. The result of that practice was a concentration of resources in the upper end of the market as distinct from what was required, which is more housing of the standard three-bedroomed variety and maisonettes to meet the requirements of our young married couples in particular. The more medium-priced end of the housing market is where we need greater output. We need a greater choice for the consumers in that area. We do not want this upgrading of the housing market at the other end and a shortage of housing for young married couples. We need more housing at reasonable prices. I agree with the measure taken by the Minister in the budget to make that possible.
A beginning — and, I admit, only a small beginning — was made by the previous Government in their budget to introduce tax relief for those who are private tenants. I urge the Minister to consider a further advance of the provision he has made in his budget to give relief of up to £1,000 of rent for people aged 65 and over.
The Minister has promised legislation to provide income tax exemption for shares given by companies to their employees under profit-sharing arrangements. This was one of the more significant measures introduced by the previous Government and I am glad to see the Minister will give effect to the measure in the Finance Bill. Share participation by employees with the appropriate tax incentive can not only lead to increased participation by employees in their companies' affairs to the benefit of all concerned, but it can also give an incentive to moderation in wage claims by employees when there is a definite instrument by which they can gain a share in the profits which arise due to their labour. Wage moderation, where an employee has a share in the company and where he can benefit from any increased profits in the company, makes sense. I am glad the Minister included that measure because it was one we supported when in Government.
On the international economic front there are a number of favourable developments which should assist our economy and which would be conducive to economic growth in the latter half of this year and in 1983. It is expected by the OECD and the European Communities that world trade will pick up in the second half of this year and grow at a rate of approximately 6 per cent.
There is also the real possibility that oil prices will decline at least in real terms in the next year or so. It is vital that the Irish pound holds its value against the dollar to realise these gains.
Across the water the United Kingdom appears to be slowly lifting itself, despite the policies pursued by its Government, from the recession in which it has languished for the last two-and-a-half years. In 1983 we can expect that demand will rise in the United Kingdom and of course this will help our exports to the UK market.
Thus there is an overall external favourable environment developing which can assist the growth of our economy in the next 18 months. It would, indeed, be tragic if these favourable opportunities were negatived by developments in our domestic economy which resulted in a loss of confidence in our ability to manage our own affairs.
I urge the Minister for Finance to carefully consider, even at this stage, the implications of his proposed measures to raise £140 million this year in additional VAT payments from companies, many of whom are in dire financial straits. This is not preaching doom and gloom. I am referring to a fact, that because of the difficult state of Irish industry the extra taxes on those concerns will lead automatically to a loss of jobs and a loss of competitiveness. This is the last time we should be handicapping our industry further with extra costs. The Minister should look at his proposals in this area to see if the revenue he assumes will result from them can be offset by the damage many of us can see occurring in employment.
The managing director of the Industrial Development Authority has pointed out that more than 350 manufacturing firms, employing 10,000 people, may go to the wall this year. The Minister's proposal to increase VAT at the point of importation will surely double that number, especially for those companies in the international traded goods sector who have their export prices determined externally and are not in a position to pass on this cost. Because of high inflation in the period from 1979 to 1981 many of our firms have now lost their competitive edge with their counterparts in the EEC. This proposal by raising costs worsens that position and will lead to further unemployment.
Unemployment is projected to rise to over 165,000 by April 1983 by the Economic and Social Research Institute. While the Minister for Finance has introduced employment creating measures which, as I said, are short term, such as the £50 million extra to the construction industry, he is providing only £5 million for the National Enterprise Agency compared with the £20 million which would have been available this year through the National Development Corporation for new business ventures.
On balance the capital injection by the Minister for Finance into the economy is swamped by the £176 million he is going to take from the business sector in their increased tax bill. I am concerned about that increased bill because I know the sufferers: those who will experience difficulty will be those who will lose their jobs. I am concerned about that increased cost because I am convinced that more redundancies will arise. This is one of the reasons why I have described the budget as anti-jobs, anti-industry.
I accept, that the Minister for Finance in our present circumstances has a very difficult job in attempting to restore balance to our public finances without, on the other hand, deflating our economy too severely and thereby causing a further rise in the already unacceptable level of unemployment. I am fully aware of the constraints that are placed by the objective economic situation on the Minister to tackle our problems and get at the fundamental causes of our serious economic plight.
I submit that now is not the time to postpone action. Now is the time to confront those difficulties, because the longer we postpone action on that front the longer we make the recession and its visitation on our economy. I presume that all Members agree that the action of any Government at present should be directed at lessening the period of recession in our economy, a recession which has already claimed thousands out of work and which must be defeated as soon as possible. My chief accusation against the Government is that they do not face up to these issues, that they are dodging them.
I believe that, for the brief seven months the previous Government were in office, we did our best to create an awareness among our people of the serious situation we are in and of the disastrous consequences for employment and the standard of living of our people if we failed to take the necessary action at this point of time. There is no point in a Government coming, in isolation, to the conclusion that the situation is serious and requires action unless that Government can elicit support from the electorate for their actions. That we attempted to do and very narrowly missed obtaining the necessary mandate in the recent election. Under very unfavourable circumstances we sought that mandate, and very narrowly missed it. We attempted in our period in office to create a public awareness of the need to support the measures we were taking, measures which were designed to bring greater employment back into our economy and to defeat the forces of recession.
I regret that this budget is not a great deal different in some of its revenue-raising aspects to that of January 1981. Already Deputy Barry Desmond, our spokesman for Finance, has pointed out that unhappy similarity. The only difference is that the deterioration on the revenue side will not become apparent until the 1983 accounting year.
Does the Minister for Finance seriously believe that the approach in the budget is the correct approach to our problems? Can our democratic way of life survive with additional sectional strife, industrial strife and unemployment levels higher than that of the thirties? Our growing labour force, which no longer has the doubtful opportunity to work abroad due to the difficulties being experienced by the other member states of the European Community, will turn on the party, parties or politicians who betrayed them and their future by failing to deal with problems which they did not cause.
I regret to have to give this verdict on the new Government and on the Minister for Finance's budget, when traditionally a measure of support should be given from the Opposition benches to the Government. Let me make this clear. We will support this Government if they take the necessary action to deal with problems in the economy and in the public finances. But we are not convinced on the evidence of this budget, that that courage and willingness are there.
The seven months during which I was in government have indelibly impressed on me the seriousness of our economic situation. It is for this reason that, despite a number of positive features in the budget which we had worked for and which I therefore support and, indeed, the dropping of some measures which were unpopular with my party, that I find this budget unacceptable.
No member of the Labour Party, not to mention the leader of the party, lightly backs proposals to increase the burden of taxation on the community. Neither do we subscribe to increasing the proportion of total tax revenue arising from indirect taxes. Our analysis and solutions to the economic crisis, which we outlined in our election manifesto in June 1981, have been proved correct.
If the post-election agreements which brought office to the Taoiseach drove the Minister to the imposition of the £176 million tax burden on industry, I would hope, indeed expect, that the Sinn Féin the Workers' Party Deputies, and those Independent Deputies on whose support this Government gained office, would agree that the price of these measures, the price of the agreement which they exacted for their support in bringing this Government to office, should not be paid for in liquidations, redundancies and increased unemployment.
I would again strongly urge the Minister for Finance to re-examine his proposal to introduce VAT on imports at the point of importation. In particular, the financing impact on industry in relation to its requirements for capital imports such as machinery and machine tools and for raw materials for further production is extremely negative and if carried through will retard the strong recovery in industrial exports as evidenced in the February trade figures.
The days, I believe and hope, of the politics of promise are numbered. That is because, quite clearly, promises cannot in many cases be delivered without serious damage to our economy.
I reject this budget on the basis that it was conceived with objectives in mind other than those which I outlined at the outset. The need to tackle unemployment is still paramount in terms of social priorities. It will, on balance, however, be considerably worsened by this budget.
The elimination of the current budget deficit is required to halt an ever-increasing proportion of our national income being pre-empted by capital and interest repayments on foreign debt. It is also necessary to ensure continued access on reasonable terms to foreign capital for the development of our economy.
The bringing forward of a massive sum in taxation from 1983 to 1982, the full extent of which the Minister omitted to indicate, the revenue buoyance estimate of £45 million which is scarcely credible and the creation of an opening deficit in excess of £1,000 million in 1983 lack the necessary political courage to genuinely face this problem. These are the reasons why this budget calls for criticism and for attack and cannot have our support.
The reduction in the yield from capital taxes, the abandonment of the tax credit system and the family income supplement for low income families are retrograde steps and do not indicate a serious commitment by this Government to equity in the tax system.
The Government budget fails to confront the basic problems facing our economy, which include high unemployment, spiralling foreign debt and a loss of competitiveness in many of our manufacturing enterprises. The budget has endangered many existing jobs by presenting industry with a massive tax bill which will put up costs and result in redundancies. There will be strong upward pressure on interest rates as the bank borrowing of enterprises will inevitably rise to pay the increased tax bill. Far from cutting down on the current budget deficit and our reliance on foreign borrowing to finance day to day spending, the Minister for Finance will face an opening budget deficit in excess of £1,000 million next January. The statement by the Taoiseach during his visit to the United States that the Government could not countenance devaluation of the punt has itself been devalued by the budget. A gaping hole in the Government's tax revenues in 1983 will arise because the £140 million from the imposition of VAT on imports at the point of entry will not be available next year, nor will the £36 million corporation tax which is also being brought forward.
From a Labour point of view, we reject the dropping of the tax on property held in discretionary trusts for tax evasion purposes, the abandonment of our proposals to introduce a tax credit system, and a related family income supplement for those on low incomes. For equity reasons, we reject these and say to the Minister that once more they will stir up feelings abroad that this Government are not interested in advancing equity in the taxation area.
It is difficult to see employment prospects enhanced as a result of this budget. The reverse is, indeed, the case when one takes into account the amount of extra taxes imposed on industry. Productive business and industry are the sectors which are the main targets for the budget proposals, the main areas for increased revenue. These are the wrong areas. These measures on companies will result in forcing many companies into liquidation and others will be crippled by making them even less competitive on export markets.
The manner in which the present Government came into office has focused international attention on the problem areas of the Irish economy. It is not simply talk of bloom and boom that will avert the critical gaze of bankers and financiers abroad who have invested in this economy. The manner in which Governments have changed here and the debate which has been raging here for many months has focused international attention on the problem areas of our economy. That international attention will not be diverted by any speeches from here, but rather will focus more strongly and be even more critical when it goes into the nuts and bolts of the budget which we have before us here, when it sees the areas of weakness and analyses the kind of creative accounting, when it looks into the revenue which is assumed to be part of the cutting down of our debts for this year, revenue which cannot be seen — non-recurring revenue which cannot be utilised next year. So far, this attention has not been reflected in any weakness in the Irish currency. Whether this is a consequence more of Central Bank intervention via foreign borrowings rather than any confidence in our economy and currency on the part of external holders, time alone will tell.
I hope my criticism has been couched in a constructive vein. I criticise this budget because it dodges the major problems afflicting our economy. The Minister for Agriculture said that in these times probably the most notable achievement of any Government bringing in a budget is that it is carried in the House. That may be so. Undoubtedly this budget has received its fair share of praise for what has been observed as its political astuteness. However, there is a more serious test that cannot be averted. It is not successful if it does not carry through measures necessary to safeguard our economy and to make jobs more secure. I do not believe it passes that test and that is why I am critical of this budget and cannot give it my support.
We will not safeguard our currency or jobs by saying that everything is all right in our economy. We need to tackle such mundane issues as our balance of payments difficulties, the current budget deficit, borrowing requirements and our rate of inflation. All these matters are interrelated and have not been significantly tackled in this budget. This suggests that the economy under this Government will remain sluggish long after world economies have recovered. It is sad that, despite the favourable improvements which are occuring in some of the economies to whom we export, we cannot conclude on the evidence of this budget that our economy will be in a position to exploit these advantages when recovery occurs in other countries. On the evidence of this budget, the Government are making time and marking it very expensively.
The budget is in essence the regulator of the nation's finances. It is about the allocation of national resources as equitably as possible between the competing demands pressing on Government. The local authority sector, which is my responsibility, makes particularly heavy demands on resources. As a compensation, however, the sector confers immense benefits on the community. Within its general responsibility for the local environment and physical planning of its area, the local authority makes many very important and specific contributions, in the provision of good housing for our people, a good road system for the movement of persons and goods, an adequate water and sewerage system for domestic, agricultural and industrial use and many other services which are indispensable to modern society.
This budget is a good one. It is good for employment, it is good for the building industry and it is good for the services administered by my Department and the local authorities. I am particularly pleased to see that it contains a capital provision of £50 million to boost activity in the building industry. This £50 million will revitalise the industry, which has been virtually brought to its knees in seven short months by an incompetent Coalition administration. The bulk of this £50 million will be channelled through my Department to the local authorities to boost the inadequate provisions made by the previous Government for such vital infrastructural services as housing, roads, sanitary services and the fire services. In my previous term of office in Environment, I had laid the foundations for a greatly expanded programme of infrastructural development. The extra money now provided in this budget will enable me to get this programme back on a sound footing so that the necessary infrastructural base can be provided to meet the needs and challenges of the eighties. The massive injection of funds now being pumped into the local government sector is also ample evidence of the importance which the Fianna Fáil Government attach to the services provided by my Department and by the local authorities.
The Tánaiste in his budget statement outlined the various provisions being made available to my Department and the local authorities. I make no apologies however for repeating them here again today. They are as follows:—
—a special allocation of £20 million to Dublin Corporation to supplement its non-capital resources;
—an extra £18.5 million for local authority housing including £14 million for Dublin Corporation;
—an additional £10 million for road improvements;
—an extra £7.8 million for sanitary services;
—an allocation of £2 million to widen the house improvement grants scheme;
—an extra £1 million for the fire services;
—an extra £1 million to restore the £3,000 mortgage subsidy to single people;
—£2 million to restore eligibility for SDA loans to single people;
—£1 million to enable Dublin Corporation to instal appropriate facilities in substandard dwellings which lack bathroom facilities;
—£200,000 to enable the corporation to purchase Shandon Park for general amenity purposes;
—£1.7 million to finance the proposed new Dublin Inner City Development Authority;
—£2.5 million to enable Dublin Corporation to increase its workforce on the Environmental Improvement Scheme from 150 to 500;
—£1.5 million for a revolving fund to enable local authorities to acquire, rehabilitate and sell currently rundown residential properties;
—a reduction in the statutory demands on local authorities which will make an extra £2.9 million available to them;
—an extra £750,000 for Dublin Corporation for housing maintenance;
—restoration of the arrangement whereby local authorities can allocate 40 per cent of the proceeds of sales of local authority houses to housing maintenance, thus releasing an extra £6.6 million for this purpose;
—£1 million to improve the living conditions of old people living alone;
—£850,000 to maintain a 12 per cent rate on Exchequer advances for SDA loans.
That list is indeed impressive and is a source of immense satisfaction to me.
One of my prime functions as Minister for the Environment is to monitor the performance of the building industry and advise the Government as to its needs. This is a crucial function. With direct employment in the industry at almost 100,000 and output approaching £2 billion in 1981, the industry occupies a key position in the national economy. The capital budget introduced by the Coalition Government earlier this year would have resulted in a drop in output in the industry of about 5 per cent and a fall in employment of about 4,000. Behind these cold statistics lay the prospect of a bleak future for the building industry. For the industry, then, this is a particularly good budget which will give a much-needed boost to both output and employment. As a direct result of the £50 million which it pumps into the building industry over 2,000 man-year-jobs are being provided this year.
I have frequently in the past expounded the virtues of investing in building, particularly in times of recession, because it provides the double value, as it were, of meeting the social needs of the community and providing essential services and infrastructure on the one hand, while at the same time creating much-needed employment both in the industry itself and in spin-off areas such as builders' providers, furniture and so on. Furthermore, the import content in the industry at about 28 per cent is low relative to other sectors of the economy. I believe, therefore, that the additional funds which are being applied to the building industry in the budget are fully justified. I want to see this money expended to the best possible advantage. and in this context I intend to develop a more detailed monitoring system in the Department in relation to the building programmes for which I have responsibility. These include major spending programmes such as local authority house building, road works and sanitary services. This monitoring will relate to both spending and employment and will keep me constantly informed about performance and problems as they arise. In my efforts to optimise employment in the building industry I will expect a renewed commitment to the use of materials and products of Irish origin and Irish manufacture, wherever possible, from all concerned, with due regard of course to our obligations as a member state of the European Community. With State investment in the industry in 1982 rising to new record levels I believe I am justified in drawing particular attention to this area. I will refer later to the budgetary provision for the maintenance of services and to the revised arrangements for the apportioning of the proceeds of local authority house sales. These measures will certainly help to cut down job losses and keep workers off the dole queues.
House building activity always has been the backbone of the building industry and I want to say about this Government's housing policy, that it has been based on a realistic relationship between established requirements and available resources.
As Deputies will be aware, local authorities have carried out an assessment of the nature and extent of housing requirements in their areas. The results of that assessment are being analysed at present and in fact this is practically completed. I indicated in this House in May last year that I intended to publish a report in due course setting out a detailed analysis of national housing needs and the Government's programme to meet those needs. Subsequently, my successor, Deputy Barry, reiterated those intentions when he announced last September that it was proposed to publish in 1982 a comprehensive White Paper on Housing. The last White Paper on Housing was published in June 1969 and I think the House will agree that in an area which is so important to the economy generally and to our people in particular it is essential for the Government to indicate clearly and positively their analysis of the housing situation and the steps they propose to take to meet housing requirements. Therefore I intend to press on with the preparation of the comprehensive White Paper with a view to having it published around the end of this year.
As regards local authority house construction, the Government have set a production target of 6,000 houses per annum which will generate a substantial increase in the level of employment on the programme. In 1981 local authority housing completions fell to 5,657, the lowest total since the early seventies. More disturbingly, the level of employment at the end of January 1982 had dropped to 5,212 as compared with the impressive figure of 7,163 in June 1981 before Fianna Fáil left office.
We are now tackling this problem of falling output and employment by making a massive £18.5 million extra capital available for local authority housing this year. This will bring the total allocation for 1982 to £186 million, an increase of 29 per cent on 1981 expenditure. My Department are asking housing authorities for details of the new schemes which they are anxious to commence this year with a view to allocating this capital and getting work under way. This will bring about a significant improvement in the number of houses under construction and consequently in the numbers employed on the programme.
I would now like to turn my attention to the Dublin area. An indication of the scale of the inner city housing programme which I will be getting under way may be gauged from the following list of housing schemes which I have been assured by Dublin Corporation will commence this year: Montpelier Hill, 132 dwellings; Seville Place/Oriel St. (phase 1), 33 dwellings; Mountjoy St./Wellington St. Lower, 31 dwellings; Portland Row/Empress Place, 24 dwellings; Black-hall St., 14 dwellings; Waterford St./Sean McDermott St., 29 dwellings; South Brown St., 34 dwellings; Power's Court/Stephen's Lane, 40 dwellings; Londonbridge Road, 16 dwellings; Harold's Cross Road, 16 dwellings; New St./Clanbrassil St. (phase 4), 35 dwellings; City Quay (stage 2), 77 dwellings; South Circular Road, Rialto, 11 dwellings.
In addition, the following schemes in Dublin city will be commenced later this year: Beech Hill Avenue, 32 dwellings; Mountpleasant Place, 33 dwellings; Cherrymount/Malahide Road, 20 dwellings; St. John's/Malahide Road, 20 dwellings; Cabra Cross/Navan Road (NBA phase 1), 168 dwellings; Cherry Orchard Extension (section 2), 213 dwellings; Kilbarron Road/Park, 48 dwellings.
All of these schemes which I have just listed, together with a 51 house inner city scheme at Queen's Terrace/Macken Street which has just been started, bring to 1,068 the total number of houses in Dublin city which will be commenced this year. Every effort is being made to get work under way this year on schemes totalling 184 houses in the remainder of the designated areas. Furthermore, a site at Rutland Street is being cleared at present and Dublin Corporation will commence the construction of about 70 houses there as soon as possible.
The budget makes an extra £14 million available for the overall local authority housing programme of Dublin Corporation. These additional funds will enable houses under construction to jump from 1,648 at the end of 1981 to 2,300 at the end of 1982. House starts will jump to about 2,036 by the end of the year and employment will rise by almost 300 from 1,500 to just under 1,800.
This programme will be a remarkable achievement by any standard. Never in the history of this country has a programme on this scale been undertaken by any housing authority. The officials in Dublin Corporation and all others who have been associated with this programme must be congratulated for the speed and manner in which they have responded to our policy for this area.
No doubt the cost of this programme will be quite substantial and, as I have already said, an additional sum of £14 million is being provided. However, as you heard in the Tánaiste's budget statement, we are committed to making available all the capital that is required and can be spent on the corporation's overall local authority housing programme this year up to a maximum of £91 million.
Another provision in the budget which I particularly welcome is the £1 million for the provision of showers in substandard corporation dwellings which at present lack bathroom facilities. The corporation have assured me that they can make an immediate start on this. I understand that the first place to benefit will be Liberty House in the heart of Dublin's inner city.
The Government regard the conservation and improvement of existing houses as a very important facet of housing policy and from that point of view we were unhappy with the existing scheme of house improvement grants which was introduced by the previous Government. In so far as it is assisting in the provision of basic amenities and the relief of overcrowding the scheme is beneficial, but one does not have to indulge in any profound examination of it to see that it has one glaring weakness and that is the absence of any grant for the carrying out of works where such work is urgently necessary to conserve the housing stock. After all, there is little use in giving a grant for the installation of a toilet or bathroom if the roof is in a dangerous condition or in giving a grant for a new bedroom if the existing bedrooms are uninhabitable because of dampness. Any worth-while improvement grants scheme must include an incentive for the conservation of houses as well as for the provision of basic amenities. It is for this reason, and also of course with the aim of encouraging and assisting householders to improve their living conditions where necessary, that the Government have decided to extend the present grants scheme to include major necessary works to the basic fabric of the house.
As the Minister for Finance indicated in his budget speech, a sum of £2 million has been allocated for this purpose in 1982. In deciding to extend the scope of the grants scheme the Government were mindful of the fact that any increase that can be generated in house improvement work which had slackened off considerably in the second half of 1981, would have a beneficial effect on employment and output in the building industry and would therefore make a contribution to the Government's primary objective of creating and maintaining employment. I will be publishing details of the new grants as soon as possible and in the meantime I would strongly advise householders who intend to commence work which may qualify under the expanded grants scheme not to do so until they make an application and have an inspection carried out. Grant aid will be available in respect of work for which applications are received in my Department on or after budget day, 25 March, 1982.
I am glad to note that the level of activity generated under the disabled persons grants scheme is increasing steadily. This, I believe, is due in part to the good publicity the scheme attracted in 1981, that being the International Year of the Disabled, but also to the substantial increase in the upper grant limit which I provided for in the Housing Package 1981 —in effect this allowed local authorities to put up the maximum grant from £2,400 to £4,000 per house.
In the Housing Package 1981 I also introduced the £3,000 mortgage subsidy mainly for first-time purchasers of new houses. This was a major contribution to easing the burden of mortgage repayments in the early years. The subsidy, in addition to the £1,000 grant, provided a valuable incentive to new house purchasers as well as playing a part in creating and maintaining demand and employment in the building industry. The decision by the Coalition Government to remove eligibility for the mortgage subsidy from single people who were not about to marry is an act of discrimination which this Government find unacceptable. The budget therefore provides a sum of £1 million which I am pleased to say will enable me to reverse that decision, operative also from 25 March 1982.
The provision in the 1982 Public Capital Programme for the payment of individual local authority house purchase loans and supplementary grants is £107 million. This provision, it is estimated, will finance about 5,200 new houses. Local authorities already have been informed of their 1982 capital allocations for this purpose and these allocations will be kept under continuous review in my Department so as to ensure that they are sufficient to meet demands arising.
This Government are fully aware of the importance of the SDA loan scheme in providing mortgage finance for persons not catered for by commercial lending agencies, but the previous Government made a number of detrimental decisions in relation to the scheme. The main advantage of the scheme was, I believe, the reasonable fixed interest rate applicable to it. However, the previous Government decided not only that the rate of interest should be increased by 3 per cent, from 12½ per cent to a record 15½ per cent, but also that the rate could be varied at six monthly intervals. This increase and the element of variability, I am convinced, would have deterred a significant number of prospective borrowers from rehousing themselves and they would instead have had to rely on the local authority to solve their housing problems.
The Government, conscious of the fact that the people eligible for this scheme are, in the main, in the lower income group and needing special help, have now decided to maintain the interest rate at a fixed 12½ per cent from 25 March 1982.
The previous Government also restricted the SDA scheme to married persons or those about to marry. This discrimination against single persons, many with genuinely urgent housing needs, this Government also find unacceptable and have decided to discontinue from 25 March 1982.
Let me say a word now about the building societies. By their provision of continuing high levels of mortgage finance they have contributed significantly to the expansion of private housing output over the years. Societies now provide 71 per cent of the total mortgage finance for private houses and their contribution is a key factor in ensuring the well-being of the building industry and in stimulating employment in the industry itself and in ancillary areas. During 1981 the societies advanced loans totalling £321 million, including £135 million to fund some 7,000 new houses. Deputies will be aware that last week I met representatives of the Irish Building Societies Association and subsequently representatives of major societies not, as yet, affiliated to the association, in order to discuss the question of the adjustment of their interest rates following the recent increase in the deposit and lending rates of the associated banks. At these meetings the societies drew my attention to the steady decline in recent months in the net inflow of investment funds and the continuing heavy demand on their members for mortgage finance. In view of the current competition for available investment funds and in order to restore the inflow of money to a level necessary to meet the demand for mortgages, the societies considered that an immediate increase in the interest payable to investors would be necessary. This would normally result in an increase in the mortgage interest rate.
The societies informed me that they had decided to increase the investment interest rate from 10.5 per cent to 11.75 per cent with effect from 1 April 1982. They put forward suggestions relating to mortgage interest rates, taxation, competition for investment funds and other aspects of the societies' finances. Following a discussion, I agreed to examine these submissions in association with the other members of the Government concerned and to meet the societies again on 19 April. In the meantime I am glad to say that the societies do not intend to increase mortgage interest rates. I would like to place on record in this House my appreciation of the constructive approach adopted by the societies.
There is evidence that more and more voluntary housing associations are willing to involve themselves in providing housing for disadvantaged people as a result of some of the other measures included in the housing package of 1981. The improved financial aids now available by way of grants, loans and subsidies and the extension of these aids to other underprivileged people, as well as the aged, make it possible for the voluntary associations to carry out projects which would otherwise be beyond their capacity to finance.
I have decided to improve the subsidy arrangements under this scheme. Up to now, the local authorities were empowered to make an annual subsidy in respect of each house provided of up to 50 per cent of the estimated annual economic rent on each new local authority house provided in their area in the preceding year. In order to streamline the scheme and assist the voluntary bodies, the upper limit of the local authorities contribution will now be increased to 75 per cent and health boards will discontinue their contribution towards the running costs. I believe that the voluntary bodies themselves will react very favourably to the improved terms of the scheme. My Department will recoup to the local authorities two-thirds of the subsidy paid by them.
Before I leave the subject of housing, I want to refer to the Housing Finance Agency. I have already met the chairman of the agency. I will be having discussions on the matter with my Cabinet colleagues and will be making a statement shortly.
I would like to turn my attention at this stage to the problems of Dublin inner city. A great deal has been written and said about the major problems associated with this area — the frightening level of unemployment, the bad housing, the dereliction, the vandalism and the poor social opportunities. The problems are daunting and while money and effort have been devoted to them over the years, little has in fact been achieved. This budget represents a milestone in so far as Dublin inner city is concerned. It provides for an extraordinary injection of funds which will enable this Government to make an all-out effort to revitalise these areas of our national capital. I make no apologies for the concentration of such a large amount of money in this particular area. The deterioration of the core of our capital city has gone too far and trojan efforts are required to redress the situation. I know that the problems of Dublin inner city did not arise overnight and will not be solved overnight —it will take time, hard work and dedication — but I can assure the House that my colleagues in Government and I will not be found wanting in this regard. For my own part I look forward to the challenge over the years ahead and I know that my new Minister of State, Deputy Gerard Brady who has special responsibility for Urban Affairs, also relishes this challenge.
It is my intention to carry to a new stage the work initiated by the Fianna Fáil Government in 1978 when they established a special inter-departmental committee to make recommendations to deal with the problems of Dublin's inner city. This was followed by the setting up of the Inner City Group which now operates under the aegis of my Department. The group has done a lot of good work in co-ordinating and supplementing the work of a variety of agencies affecting the inner city area. They have allocated grants from the inner city fund totalling almost £1¼ million for a variety of projects. Last year they financed the very successful Dublin Inner City Employment Programme which enabled the National Manpower Service to place 374 inner city residents in employment. Over £250,000 has been made available for inner city co-operatives and for other employment-creating projects in addition to £158,000 in site subsidies for the IDA inner city programme.
Schools in disadvantaged areas were allocated grants amounting to £237,000 for teaching aids and other improvements while £68,000 was made available for youth clubs and various community facilities and £39,000 for amenities. A sum of £157,000 was provided for recreational facilities and £127,000 for various social projects. I think that the spread of projects assisted from the fund reflects the many facets of the inner city problem, but there is a great deal still to be done.
I now propose to replace the Inner City Group with a new inner city authority in order that work under this programme may be intensified and extended. The new development authority will have its own special fund and whatever powers are necessary to enable it to achieve its objectives, including power to make grants. The budget provides a sum of £1.7 million for the new authority in 1982 on top of the £300,000 which had already been earmarked for the Inner City Group in my Department's Estimate.
The drafting of legislation to give effect to the new authority has already commenced in my Department and it is my intention to introduce the legislation in the Oireachtas in the next session. I am confident that this new authority will be a major force in getting to grips with the general problem of urban decay and in promoting programmes of rehabilitation, renewal and development so as to restore new vitality to the inner city and to re-establish communities capable of sustaining themselves economically and socially in a pleasant and satisfactory human environment.
The Government are satisfied that existing methods of tackling the special problems of physical redevelopment and urban renewal in inner city areas have been found wanting and that a new approach to this particular matter is needed if the living city concept is to be brought to fruition. For that reason, legislation will be brought before the Dáil in the next session to enable a number of pilot projects to be launched at an early date. The areas in mind for the initial projects are the site at the Custom House Docks in Dublin and the area covered by the medieval walled city of Dublin. The legislation will not, however, be confined to these areas; it will also enable other areas to be similarly designated for special attention, whether in Dublin or in other urban areas throughout the country.
The central feature of the legislation will be the establishment of small ad hoc development commissions with responsibility for the regeneration of defined areas and with suitable powers and finances to achieve this. The House will have an opportunity of discussing the matter fully when the necessary legislation comes before it in the next Dáil session and I therefore do not intend to go into detail now. I want to assure the House that work on the necessary draft legislation is already well advanced and that the Government are determined to have the new structures in operation as soon as possible.
As mentioned by the Tánaiste in his budget speech there is to be a special drive to deal with derelict sites to improve appearances and to accelerate new development in urban areas. The details of this drive will be announced in due course. I also hope to see much greater activity by local authorities in using their existing statutory powers to deal with derelict site situations whether by having them cleared up by the owners or, if necessary, by acquiring them and making them available for development or amenity purposes.
I am providing a special allocation of £200,000 to enable Dublin Corporation to purchase Shandon Park to ensure that it continues as an open space amenity, available for public recreation. I feel that this is particularly worth while in an area which is generally deficient in facilities of this kind.
I am convinced that there is scope for improving the performance of the physical planning system both at local and at appeals level. This is not to say that all of the complaints one hears about the system are justified or that all of the delays which arise are the fault of the public authorities. It seems to me, however, that the importance of job creation at the present time dictates that we should have a fresh look at the system to ensure that avoidable delays are eliminated.
As a short term measure, I will be bringing forward a Bill in the next Dáil session to implement the previous Government's undertaking to extend the duration of planning permissions, which is fixed at five years under existing law, and to introduce a new procedure for extension applications which will, I hope, eliminate the difficulties caused for both developers and planning authorities under existing law. That Bill will also deal with charges for planning applications and appeals and with penalties for planning offences. During the course of 1982, I intend to initiate a general review of planning legislation with a view to identifying any changes in the law that may be necessary to facilitate speedier decisions at both local authority and appeals level. This will take some time. In the meantime however, I will be asking each planning authority to carry out a review of their approach to planning control and of how they deal with applications.
To assist the local authorities in this review, I am arranging for the preparation in my Department of a memorandum containing advice and guidelines in relation to development control functions. I am hopeful that the reviews and advice will lead to a situation in which the number of cases finally determined at local level will increase, appeals numbers will be reduced, avoidable delays and complaints from development and other interests will be less frequent and staffing and other resources will be released for more productive and positive planning work.
The general review of planning legislation which I have referred to will extend to the operations of An Bord Pleanála. In view particularly of the employment considerations which are involved, I am very anxious that everything possible will be done to speed up proceedings in dealing with appeals. This is a matter which I will be pursuing with the board in the context particularly of a current review of the board's organisation which is designed to improve efficiency in speeding up decisions.
The budget proposals for financing environmental works reflect the Government's determination to tackle the unemployment problem and especially to provide more employment opportunities for young people.
A total of £4 million will be allocated in the current year to local authorities to enable them to undertake a new and extended youth employment environment programme. The provision is expected to provide the equivalent of about 400 man years of employment and to enable some 600 young people to be employed in the current year.
Dublin Corporation have 140 men employed under the existing environmental improvement works scheme. Without additional financial provision those men would be losing their jobs shortly. To safeguard those jobs and to enable employment under the programme to be substantially expanded the Government have provided an extra £2.5 million to the corporation for 1982. This will enable the corporation to increase the number of men employed under the scheme from 140 to 500 in the current year.
It is evident that these additional allocations will enable a significant contribution to be made by local authorities around the country to easing the local unemployment situation. While this is the main aim, the use of these resources will also enable local authorities to intensify their work in dealing with dereliction locally and in undertaking clean-up operations and programmes for providing and improving amenity and recreational facilities and, in general, improving appearances in town and countryside. I hope that full use will be made of the opportunity to tackle the problem of derelict sites and to avail of them for intensive amenity use wherever possible. A good quality environment is important not only for our own satisfaction but also for the continuing development of industry and tourism.
Deputies will be aware of the firm commitment of this Government to the improvement of the public road network in line with the demands of present day transportation needs. During our previous term of office we published the road development plan for the eighties which set out our objectives for the development of the road system in this decade. I was glad to be able to announce in 1981 that the Government, in furtherance of the objectives in the plan, had provided a sum of £80 million towards the implementation of a programme of road works in that year. That sum represented an increase of over 51 per cent on the provision for 1980 and I had hoped that the expansion of the annual roads programme would be continued. I realise now that I was perhaps a little native to expect this from the Coalition Government, given their dismal record in the whole area of the construction industry over the past decade. I found, on return to office, that the amount provided by them for the 1982 road works programme did not represent any significant increase in real terms.
That position has now been redressed and I am delighted to have the opportunity to boost the provision for the road improvements programme by a further £10 million. With these additional funds I will be intensifying on-going programmes for major works as identified in the road development plan and for the improvement generally of the national route networks, including realignment schemes, the elimination of accident black spots and the provision of hard shoulders. In addition, this extra money will enable me to finance a programme of essential works on roads other than national roads, where serious deterioration of pavement has occurred due to the combined effects of increased traffic and erosion resulting from severe weather conditions.
This supplementary programme will not only accelerate the implementation of the Government's objectives for the development of the road network but will also result in the employment throughout the year of up to 550 road workers which could not have been sustained at the level of investment provided by the Coalition Government. In the deployment of the additional funds I have ensured that the optimum value will be obtained both in purely economic terms and in labour content. Road works have always been recognised as a major generator of employment and the Government were very conscious of this in providing the generous additional allocation in the budget.
The existence of adequate water and sewerage services is essential to the development of any area and to the protection and improvement of its amenities. Such services provide the essential infrastructural base on which many other programmes such as industry, housing, agriculture and tourism must be based. They are a necessary pre-condition for the whole process of economic development at national and local level. It is vitally important, therefore, that we have the necessary sanitary services schemes available to take advantage of the future improvement in the climate for productive investment.
I can assure the House of the Government's and my own personal commitment to making the necessary allocations both now and in the future in order to provide services on the scale required to meet future needs. Our record in the past is certainly impressive. Between 1977 and 1980 alone we almost doubled the overall public capital programme provision for public water and sewerage schemes — from less than £25 million in 1977 to almost £47 million in 1980. In 1981 we provided £66 million as part of the investment plan, 1981. The sum of £76 million provided for public water and sewerage schemes in 1982 by the Coalition Government, represented a reduction in real terms in sanitary services compared with last year, when allowance is made for increased construction costs. This capital provision was not adequate to allow a substantial volume of major new schemes to start.
I found also, on returning to office, that the original provision of £4 million for public water schemes eligible for grant assistance under the western package of FEOGA aid was substantially less than the projected grant liability in 1982. The provision of £7.5 million for group water schemes also fell short of the total value of grants for schemes in non-western counties likely to fall due for payment before the end of the year.
I am, therefore, very glad that the extra money being injected into the overall capital programme in 1982 includes £7.8 million for sanitary services. As a result, I will shortly be giving the go-ahead for the commencement of work in 1982 on a number of new sanitary services schemes which are of the highest priority for economic and physical development. It will also mean that public water schemes designated for grant assistance under the western package of FEOGA aid will now be adequately funded this year — this is concrete evidence of the Government's commitment to build up the infrastructure of the west of Ireland. The extra moneys which will be able to allocate to group water schemes in non-western counties will mean that the trustees of these important community projects are assured of grant payments being issued promptly, thereby minimising the need for groups to incur bank overdraft charges. The extra £7.8 million for sanitary services will generate direct employment of about 265 men, together with additional employment in firms manufacturing pipes, treatment plant and other materials used in water and sewerage works.
Adequate waste disposal facilities are vitally important for industrial development and the expansion of employment. It was part of the general strategy for waste disposal which I commenced in May 1981 that a central depot would be set up to receive industrial and other waste for which alternative acceptable means of disposal were not available. Before leaving office I had arranged that surveys of potentially suitable locations for the proposed centre should be undertaken.
The decision to locate the facility at Baldonnel was taken by my predecessor, who in the period between the holding of the election and the change of Government entered into a binding commitment to purchase the site at Baldonnel. The National Building Agency will be responsible for development of the site, subject to planning permission being obtained. The best available expertise will be engaged in the design work. Unfortunately, some of the reports on this project have given the impression that we are talking about a dump. That is simply not so. No waste will be tipped or dumped on this site, and people have nothing at all to fear from it. What we all would have to fear is a situation in which there were no proper outlets for wastes which are potentially hazardous and which, for that reason, require special care in disposal. That situation, if it were allowed to continue, could well lead to serious threats to the environment, and even to public safety. That is the reality and we have to deal with it. The project poses no threat to anybody. Initially an export service will be arranged for the wastes which are accepted there. Treatment of certain wastes can be undertaken economically in the future, if there is a demand for it, subject to all the necessary environmental safeguards. Therefore people who might be concerned by some of the reports as to what was intended can be totally reassured.
The provision of the national centre will not, of course, remove the need for proper and adequate disposal sites for waste at suitable locations throughout the country. This is an area in which a lot remains to be done as well and I will be pursuing the matter with the local authorities in the period ahead.
I now wish to speak briefly about the fire services. It is a feature of our modern society that the risk of fire outbreak has increased with industrial and technological development. The introduction of a wide variety of new materials, products and substances which are needed for industrial purposes or to help improve living and working conditions have added to the danger of fire and the complexity of many fire outbreaks. None of us needs to be reminded of the importance of fire safety measures.
Of central importance, of course, in the development of the fire services is the level of capital investment in the construction of fire stations and the purchase of fire-fighting, communications, rescue and other emergency equipment. At the present time there are ten stations under construction and there are a number of other projects at advanced stages of planning. Since January 1978 some 22 fire stations or extensions were completed. This progress is a considerable strengthening of the resources of the fire services throughout the country. Included in this programme are a number of major stations in the Dublin area. The capital allocation of £3.75 million proposed by the previous Government for investment in the fire services in 1982 would have been sufficient only to finance projects which had been completed or were already under construction at the beginning of 1982. For this reason the Fianna Fáil Government have added a further £1 million to the fire services capital allocation to ensure that funds are available to finance urgently-needed projects which are now at advanced stages of planning and which might otherwise have to be deferred.
This expanded programme of capital investment has been further encouraged by a scheme of subsidy to local authorities which I introduced in March of last year. This subsidy is payable at the rate of 50 per cent in respect of loan charges incurred by local authorities to provide and maintain the facilities that are needed to meet the demands placed on a modern fire service.
Local authorities are of key importance in providing the services necessary for growth in the economy as a whole. The additional sums the Government have provided in this budget for the capital services of local authorities, and which I have described earlier, will be of direct and immediate importance in relation to these services. The cash injection will at the same time provide a much-needed impetus to the construction industry, thereby helping to combat unemployment in that industry. But local authorities must also have the resources to keep their day-to-day services, and the employment they give, functioning at a reasonable level.
The budget contains a number of features which will make a positive contribution to these day-to-day services. The previous Government had decided that the entire revenues accruing to local authorities from sales of their houses were to be devoted to capital purposes in order to relieve the burden on the Exchequer. The effect of this decision would have been to deprive the local authorities of almost £7 million they previously had available to them for their day-to-day services. This decision alone would, I believe, have placed hundreds of existing jobs at risk. It would also have led to a reduction in day-to-day services, including the maintenance of local authority houses, to an unacceptably low level. This budget has enabled me to reverse that decision, thus restoring the full £7 million for local services and, in addition, it will enable me to make a further £750,000 available to Dublin Corporation specially to ensure adequate house maintenance.
I was conscious, both in my previous term as Minister and since resuming office, of the heavy and escalating burden local authorities are asked to carry in respect of certain services which are now more national than local in character. I am referring in particular to the cost of supplementary welfare allowances and arterial drainage. These demands have been a particular source of irritation to local authorities. In my previous term of office I had initiated proposals designed to reduce the impact these demands were having on the local authorities' own services and I am particularly happy that I have been able to have these proposals reviewed and accepted so soon after resuming office. I have, in fact, already notified local authorities that the burden facing them in respect of supplementary welfare and arterial drainage this year has been reduced by about £3 million.
I might also mention the additional funds being made available to Dublin Corporation to keep essential services going. While I have no doubt that every local authority can point to special difficulties they are experiencing, the Government recognise the exceptional needs of the Dublin area because of the severity of the social problems there and the real danger that many of the services provided by the corporation would have to close down, with considerable job losses. We therefore took the exceptional step of providing £20 million to the corporation to ensure continuance of normal services at an acceptable level.
Taken together, the measures the Government have provided for in this budget will mean that local authorities will have an extra £44 million to spend on their day-to-day services in 1982. When account is taken of this extra £44 million the total current spending of local authorities will, it is estimated, be about £808 million. This is about 27½ per cent higher than the estimated out-turn for 1981.
In previous speeches in this House I have referred to the Coalition Government as prophets of gloom and doom. Their recent short spell in Government certainly confirms this view. In seven short months they did as good a public relations job as I have ever come across in spreading their gospel of gloom and doom, not only throughout the four corners of our own country but throughout the world. A Government who adopt that kind of defeatist attitude just do not deserve to be in Government.
My colleagues and I in the Fianna Fáil Party certainly do not share these pessimistic views on the economic and social future of our country. We have a young and expanding population. We are rich in natural resources. We have a strong industrial and agricultural base. It is up to us to see that all these valuable assets are utilised to the full. A developing economy such as ours needs more houses and better roads, more serviced land, a sound infrastructural base for further economic growth and more amenities. These will be high among my objectives over the next few years and I am confident that the measures which I have outlined to you today will be a key factor in seeing that they are brought to fruition.
I wish to deal with the agricultural aspects of this budget. There is very little in the budget which will add in any way to a resurgence of confidence in the agricultural sector, which is necessary to underpin a general economic expansion in order to provide for our expanding population. It was with that aim in view that I and many other people looked at the process of framing the overall Estimates for public expenditure in 1982, particularly in the agricultural sector. That aim was also in view in our budget proposals presented to this House on 27 January. Between the Estimates for 1982 and those budget proposals we provided for a number of different measures designed to assist in bringing about this resurgence of confidence in farming which I have talked about. We provided, between the Estimates and the budget provisions we put forward, a total of about £40 million for new measures to deal with the specific problems we find in agriculture today. These included a number of measures which I would like to detail and some I will refer to in greater depth in a few moments.
They included, in the first place, a provision of £5,500,000 in this year's Estimates for a scheme to encourage expansion in our livestock herd by providing assistance for the retention of extra heifers. We provided £4 million to finance a 5 per cent interest subsidy for development farmers and a further £5 million to finance an equivalent subsidy for farmers other than those in the development category. We provided £18 million in the Estimates for halving the rates burden which now falls to be paid by farmers. We provided £700,000 to cover the refund of resource tax and we provided £850,000 for an improvement in the hardship fund, which is aimed specifically at meeting some of the problems encountered by people who have serious disease breakdowns in their herds.
In our budget proposals we provided £4 million for a special scheme of assistance to help farmers in severe financial difficulties. We provided £200,000 for a special scheme of assistance for the horticultural sector. Outside the budget framework we also made provision for a scheme — now in operation — with the ACC, based on lending from the European Investment Bank, to provide fixed interest loans for livestock development and to assist young farmers in developing their activities. I am bound to remark that most of those schemes find their place still in the programme to be followed by the Government this year and I congratulate them on having kept those elements which I believe are vital to building up our agricultural production.
There are a number of areas in which the Government in their budget proposals have seen fit to change those provisions in a way which I believe can only do damage. The first and most important one is a reduction in the allocation we set at £4 million for the special package to assist farmers in severe difficulties from the credit point of view and to reduce that to a figure of £1.5 million. The House deserves an explanation of what is involved in that scheme. The scheme we had worked out with the lending institutions was to cover a total of £190 million of borrowing, which was the extent calculated by those lending institutions of the hard core credit problem in the agricultural sector. The scheme provided for a reduction of 8¾ per cent in the interest payable by farmers who would benefit under the scheme. The total benefit to farmers arising from the scheme is £16.6 million, financed partly by the lending institutions, partly by the Government in terms of direct financial input and partly from Government sources by means of an alleviation of the tax burden on that proportion of the lending in question.
We estimated the total cost of the scheme in a full year to be in the region of £7.3 million. Allowing for the fact that in 1982 — the initial year of the scheme — claims would be delayed in coming forward from the lending institutions, because we had to get the scheme into operation, and the nature of the scheme, we allowed £4 million to cover the cash cost we expected would arise in this year. That has now been cut to £1,500,000. The reason given in the Financial Statement by the Minister for Finance last Thursday is that this reduction is justified because the scheme will not now come into operation on 1 April. I want to make it very clear that this is not an adequate explanation for that kind of cut in the provision of the scheme. The fact that the scheme does not come into operation on 1 April does not in any way affect the total amount of borrowing to be covered by the scheme, nor does it in any way affect the total cash cost that will arise this year for the Exchequer from the scheme. If the scheme is to operate as I had negotiated and put forward just before our budget and as the new Minister for Agriculture has promised to implement, it cannot be done for £1,500,000 this year.
I can only conclude that one of two things must be the case, the Minister intends to make a major change in the scope and coverage of the scheme or he will be obliged later on this year to make an extra allocation to cover the cost. I do not know which of those two explanations we must believe. I ask either the Minister for Finance or the Minister for Agriculture to make it clear to the House and to the farming community which of those two explanations we are to take from the allocation being made for this scheme. The Minister for Finance in the Financial Statement at one point appeared to make it clear that the provisions set out in this year's budget would have to be strictly adhered to. If we are to believe that will be done by the Government on this occasion, I am afraid the only conclusion we can come to is that the scope of this scheme will be changed very substantially.
There is therefore a doubt about a scheme which has taken a considerable time to bring into operation, which could have been in operation a great deal sooner than this if the previous Fianna Fáil Government had exerted themselves on the matter when the problem was first brought to their attention in October 1980. I regret the doubt in relation to this scheme because we need that scheme. The kind of objective which that scheme was designed to attain is one which we all must share and which we desperately need in order to get the farmers involved, who by and large have shown a commitment to expand production back on the road to expansion in production. If we are to do so, this matter must be urgently resolved. I ask the Minister for Finance and the Minister for Agriculture to make it clear to the House how they will operate that scheme and how they justify the present inadequate provision that has been made for it in the budget.
In the period just before the election the present Taoiseach and the Minister for Finance gave a commitment that the application of the scheme would be back-dated to 1 January 1981. That was their business. I did not give that commitment, although that is something one would like to do. My intention was that it should apply to the total amount of the interest bill payable by farmers who would benefit from that scheme in 1982. I thought that if the Government were to make up their minds to make enough funding available to cover the reduction of the total interest bill payable in 1982 that would already be a great deal of progress but it falls very far short of the commitment that appears to have been given that it would be back-dated to 1 January 1981.
I note there is nothing in the budget which indicates that there will be any change in the application of the provision for the calf heifer scheme. I am happy to see this because it was a scheme intended to facilitate and encourage expansion of breeding herds, an expansion we urgently need to provide the basis for expansion in our beef industry and also in milk production. I am glad that the scheme is still on the books. We had to negotiate that scheme with Community authorities and we got clearance for it. During the election campaign the present Tánaiste was quoted on a number of occasions as saying that he would change the scheme and instead of paying £70 for additional heifers as provided for under our scheme he would make a cash grant of £60. I note that he has changed feet on this matter. I am happy at that because he and the Minister for Agriculture will now have the assurance that they are operating a scheme about which there can be no question at a later date, a scheme they can bring rapidly into operation and for which adequate provision has already been made in the Estimates for 1982.
The budget makes provision of £4 million for increasing the rate of grants for farm buildings under the farm modernisation scheme, bringing up the rate of grants by 5 per cent in each case. I agree that it is desirable to make as much provision as possible for investment in further development. I agree that where possible it is desirable to increase the rate of assistance we give to farmers for those activities but where I take issue with the Government's decision on this matter is that this appears to have been done, and the provision appears to have been made to a large extent at the expense of an adequate provision for the farm rescue package. We would all like to make more provision for all these schemes which increase investment but I have doubts about the wisdom of taking money from a scheme that is designed to get a large number of farmers out of the severe difficulties they are in at the moment in relation to repayments of development borrowings on their farms. I have serious reservations about taking away provision from that scheme in order to put it into increased grants on farm buildings because we need to get expansion moving again on the farms, and in order to do that we must give back confidence to the people now suffering the worst effects of the costs-prices squeeze they have suffered for the past three-and-a-half years in farming here.
We must make adequate provision for those people and that must be our first priority. That is a choice we made in our budget proposals and it is a choice that the present Government appear to have funked in their budget. I do not think that the result of their approach in that area is such as to give any confidence that there is a real commitment to making the kind of choices that are necessary in order to get expansion under way again on farms and by farmers who have shown in the past a commitment to expanding production even in the difficult conditions of the last three or four years.
Another provision which might have appeared in the budget does not appear. Early in February, some time before the last election, the outgoing Government decided that the provision of £690,000 made available to us from EEC funds to cope with the effect of the extremely harsh weather in January would be made available to the Department of Agriculture with an amount going also to the Department of Fisheries and Forestry in order to provide compensation for losses suffered by farmers and by certain inland fishery operators due to the severe weather. It seems to us that the best use we could make of that £690,000 was to apply it to the very difficult areas where farmers suffered most severe losses during the snow storms and the long spell of cold weather which followed and made it difficult for them to deal with the effect of the snow storms on their farms. That is quite a while ago and I see no provision for the expenditure of these moneys in the present budget. I should like to know why. It seems to me that there has been adequate time since 9 March to make a decision on this matter and say how and when those funds will be expended.
Again, I ask the Tánaiste and/or the Minister for Agriculture to give us some clear indication of their intentions in that respect. It is rather urgent now to do so. We have allocated the money to deal with the most severe problems that arose in that connection. The farmers in question are now in a situation where they believe that some assistance will be forthcoming; they want to make their plans, particularly in the hill sheep areas where farmers want to reconstitute their flocks. They want to know what assistance will be available from moneys already allocated to this country in order to deal with those problems.
Apart from those areas of difference, the budget before us retained all of the items we put into our budget proposals in relation to agriculture. We provided as much as we felt we could reasonably provide to promote agricultural development, an amount, between the budget and the Estimates, in the region of £40 million extra. We provided that in the framework of the financial targets we set out in the budget proposals. I have a document here which I came across during the election campaign. It is titled "A Four-Year Development Plan for Irish Agriculture" and it was produced by the Fianna Fáil Party. Having thus titled it the Fianna Fáil Party said in the first page that this was not a four-year development plan but that a four-year development plan would be drawn up. On the last page of this document — I cannot give an exact reference because the pages are not numbered — there is the following paragraph: "Fianna Fáil will not provide for some of the increases in expenditure proposed in the coalition budget"— it does not say which. It goes on to say: "We will put less emphasis on indirect taxation in our economic strategy."
I take those two sentences separately. First, the statement that Fianna Fáil would not provide for some of the increases in expenditure proposed in the Coalition budget, turned out in one or two cases to be true. Dealing with agriculture, it turned out, unfortunately, to be true in relation to the rescue package I spoke of a few moments ago. In the overall, it turns out that in their budget Fianna Fáil provide for an increase of £110 million in total current spending and £32 million on the capital side. It is claimed they also provide for a reduction in the current budget deficit, but that is not a figure in which we can have any great confidence and certainly is not a figure I would believe, given the presentation of the rest of the budget and the doubtful nature of many of the figures in it. If that is the kind of indication we can expect from the Government and if that is the level of precision as to their plans, the House will not be surprised if I have very serious doubts about Fianna Fáil's intention to keep even to the kind of targets they set out.
The second sentence of that paragraph says "We will put less emphasis on indirect taxation in our economic strategy". We heard that cry very frequently during the last couple of months. I decided to have a look at how much emphasis was being put on indirect taxation in the economic strategy being pursued by Fianna Fáil, as evidenced in their budget proposals. I looked at the table at the back of the Financial Statement of the Minister for Finance made last week and at the corresponding table in the statement made by Deputy Bruton on 27 January. In the January statement the increases provided for indirect taxation amounted to £250.7 million of which £163 million took the form of VAT and the remainder excise. I compared those figures with those in the table issued last week. In putting less emphasis on indirect taxation the VAT figure increased from £163 million to £211.3 million and the total extra take from indirect taxes was increased from £250.7 million to £297.2 million.
The Minister's intention, as stated in the "Four-Year Development for Irish Agriculture" published by Fianna Fáil, says that he will put less emphasis on indirect taxes which translates itself into an additional take of indirect taxes of £46.5 million when compared with the budget proposals made on 27 January. That, unfortunately, represents the kind of consistency we can expect from this Government in their economic strategy and approach to budgeting. It also represents a complete turnabout of the kind of thing put forward by the Fianna Fáil Party during the election campaign and is an extra imposition of £46 million in indirect taxation on the public, including farmers, PAYE taxpayers, those in jobs and those without jobs, something the Government were committed not to do. I find that a worrying trend and a worrying headline for what we can expect in terms of budgetary policy and adherence to targets in carrying out their economic planning.
I want to return to a point raised in a resolution discussed at length last Thursday, and which I consider to be very relevant. I refer to the measure aimed at a zero VAT rating on books. I and a number of my colleagues said it was a measure we would welcome if it was possible to put it into effect. During the discussion we made an alternative suggestion, that if it were not possible to zero-rate books we should apply a minimum rate, so that we would not get into the kind of difficulty we suspected might arise if we were to zero-rate books. During that discussion the Minister gave a number of assurances.
In response to a question from Deputy Bruton, the Minister said: "EEC laws allow for marginal changes in the average of existing zero rates". I am not quite sure what he meant by that, and perhaps when we have the Official Report it will be clearer. He also said: "I believe we will be able to get EEC sanction for the package as a whole". He was referring there to the package of EEC measures he had introduced. In response to my question on whether he had to get permission from the EEC to take the measures he put forward he said: "We do not have to obtain their permission." In response to another question from me he said: "EEC laws allow for marginal changes in the coverage of existing zero rates". Deputy Garret FitzGerald suggested that we might consider a minimal rate instead of a zero rate and, when he asked for an assurance that we could proceed as proposed the Minister said: "I can give the assurance to the Deputy". When asked again if he could give an assurance, he said: "Yes". The Minister displayed complete confidence last Thursday that there would be no difficulty in implementing the measures he proposed and which, as I said, we would support if they could be applied.
From what is the Deputy quoting?
The unofficial and unrevised version of the proceedings in this House last Thursday and partly from my memory of the debate.
I was not happy with those assurances so I took the trouble to check the position. On consulting the directive and officials in the EEC Commission, I found it was not possible to bring in new zero rates for goods or services. I regret that that is the case, because it is a measure we could support. But, not only is it not now possible to do it, but it has not been possible to do that since the directive was agreed at a meeting of Finance Ministers of the European Community in December 1976. I conclude from that that the doubts I expressed about the feasibility of an otherwise highly-desirable measure seem to be justified.
I further examined the matter to see what could be done in relation to applying a reduced rate of VAT. I found it was possible to introduce a new rate of value-added tax on any goods covered by the VAT system, with certain stipulations. The rate applied must be at least 1 per cent in order to provide the own resources for the European Community, which is part of the reason for having the directive in question enforced, and it must also be adequate, among other things, to cover any VAT borne by the inputs on the product before it is marketed to the final consumer. Therefore, it is possible to apply a reduced rate on books, which I have not been able to calculate because a great deal depends on what the inputs are.
However, I make the point that it will be more difficult to do and that the reduced rate will have to be higher to the extent that the Government go ahead with their proposal to apply VAT directly at the point of importation. That would mean that compared with the present situation some input would have to be taken into the calculation which up to now would not have borne VAT. I dislike having to make the point in the way I have made it since this is a measure that we should like to see in operation were it possible, but, unfortunately, on Thursday last the Minister gave a number of assurances which an examination of the legislation would not allow me to accept and which in the circumstances he should not have given. It is clear from a number of points he made in relation to marginal changes in coverage, to marginal changes in average or zero rates, that he was perhaps not fully informed as to the situation. Given the importance of the matter as evidenced by the debate we had on Thursday evening, the Minister should have considered the feasibility of this measure in more detail before bringing it to the House.
In a general way I would make the point that the budget is one which, in the Government's words, aims at achieving certain targets and at helping us to increase employment and making life somewhat easier for the people than would be the case otherwise. I must reject those claims. It has been said already — and this is a sentiment with which I agree — that the kind of financial targets set out in the budget are not credible. I do not believe that the Government will achieve their financial targets, notably a reduction in the current deficit, by means of the measures put forward and the buoyancy estimates in the budget. Neither do I believe that, in relation to agricultural production and the kind of incentives we need to promote further development, this budget provides anything new that would allow us to look forward to a new stimulus in the agricultural sector from budgetary action. So far as the rescue package is concerned, the budget seems to withdraw from the position we had already established in order to deal with that problem. Neither do I believe that in the way it is framed, or in the way the revenue is being gathered, the budget will produce any net gain for the population in general, whether they be farmers, industrial workers or people working in the service industries. I say this because the budget will raise more revenue by way of indirect taxes from the population generally than would have been the case so far as any of the previous budget proposals were concerned. Instead, the taxes are being increased in a way which will be damaging to industrial activity as well as to farming activity for the same kinds of reasons. For that reason I must say that this budget will not achieve the objectives which the Government claim the budget sets out to achieve. It is a very poor substitute for the kind of action on which the Government have deliberately turned their backs.
I wish to congratulate the Minister for Finance on the introduction of a budget which managed to deal in a most humane way with a very difficult economic situation. This was achieved by careful fiscal thinking and positive measures, the sort of measures which enabled the Minister to bring in a package which would not place intolerable demands on anyone and which would avoid the harshness of the budget proposed by the Coalition. I am astonished to hear Deputy Dukes suggest that our budget does not help the poorer sections. Surely any sane person must realise that what the Deputy is saying is not correct. I cannot understand how a Labour Party who purport to be socialist could have sat around a Cabinet table and agreed, without dissent, to additional taxes on food and clothing. I have often heard these people referred to as smoked-salmon socialists and all I can say is that after listening to their spokesmen here I must subscribe to that view.
My main concern, as a Dublin city councillor, is to deal with the question of some of the plans enshrined in the budget for the purpose of putting new heart into this capital city. These proposals are long overdue, because Dublin has been literally falling apart all around us with no positive steps being taken up to now to do anything about it. Whole areas have been devastated because of the buildings becoming derelict, while whole communities have been moved out to the huge new housing estates, into surroundings that are totally alien to them.
Attempts by some sections of the media to create a Dublin versus the rest of the cities of the country situation can only be described as despicable. This is our capital city. It belongs not only to the people of Dublin but to the people of the entire country. It is used at some stage or other by most of the people of the country. To people from abroad visiting here Dublin is a shop window, but what a shop window it is. These visitors can hardly be enamoured to see the derelict sites in Gardiner Street, Mountjoy Square and such places. There are at the moment 2,000 acres of derelict sites in the city in need of tidying up. The Government must be complimented on pumping money into efforts to make this city once again a live city. As it is, it reminds me sometimes of Goldsmith's The Deserted Village. It will be deserted if the present trend is not halted.
There are some who maintain that other cities in the country are just as worthy of the revenue proposed for Dublin. I do not accept that. Having been a councillor here for some years past I am satisfied that not sufficient attention was paid to inner city development. This area must be given urgent attention and that is why I am glad the Government have given priority to dealing with the problem.
We may well ask what kind of impression a person would get of this city if on driving from Dublin Airport he were to pass through areas like Summerhill, Mountjoy Square and Gardiner Street, areas in respect of which there seems to have been a deliberate running down policy for the purpose of getting rid of the people who live there. These areas are a far cry from what we see in the newsagents on picture postcards of the Four Courts, of Anna Liffey and so on.
It is in the interest of all our citizens that our capital city be the showpiece of the nation. Why should there be so much criticism of the spending of money for the rejuvenation of Dublin when every country in the world ploughs the lion's share of its resources into making its capital city something to be proud of, something to reflect the quality of life in the country? Dublin must be given a new lease of life in the interest of those who must live and work in it. There are some areas in this city in which there is an unemployment rate of 40 per cent, where there are virtual ghettoes of unemployment and where many young people turn to crime because of having nothing else to do. Dublin is an expensive city to live in and, if one is out of work, one must get money somewhere. That is why we have such an unprecedented wave of crime in this city today, most of it aimed at getting more money. Old people are terrorised. Young people living without money in impoverished areas in Dublin have no moral scruples about how they get money. With all the talk about crime, only a tiny minority of people are involved. To countless thousands of young Dubliners unemployment means disillusionment. They can only hope that some jobs will turn up.
A rejuvenation of the city centre will help to alleviate the unemployment problem. One has only to look at the rehousing programme in the Coombe, in City Quay, in Ringsend, in Clanbrassil Street, to see how new thinking can improve the quality of life for people whose lives have become a nightmare because of bad housing conditions. They do not want to be moved away from their city roots to some distant satellite town. They want to live in the places they know and with the people they know. As Dubliners, they are entitled to that consideration. They they grew up.
Dublin city has problems of derelict sites, bad housing, unemployment, crime and traffic congestion, which must all be tackled. This Government and this budget are making a start. I am confident that in ten years from now Fianna Fáil will have achieved their goal of creating a new healthy life for Dublin city. This will be of benefit not only to Dubliners but to everybody who comes to Dublin for a day's shopping or in search of a job.
We are making a start this year. Indeed, £90 million will be spent on local authority housing in Dublin this year and £20 million of that will be spent in the centre city areas. This is the type of development we need. Dublin Corporation are advertising again for skilled workers. I hope for the sake of Dublin and the rest of the country that the worst of the depression is over and that it will fade away gradually, together with its partner, the former Coalition Government.
If this amount of finance were not pumped into the city by the Government, there would be a loss of 300 jobs in Dublin Corporation. It is an achievement to keep those people in their jobs. The necessary money to maintain the level of services in this city must be found. I do not care where it is found. One-third of our population live in Dublin, over one million people. The problems of Dublin cannot be related to the problems of towns throughout the country. They are magnified here and they must be seen in that perspective.
Deputy Jim Mitchell had some hard things to say about the increased price of drink last Thursday. He said drinkers were being taxed out of existence. Deptuty Mitchell works for a certain establishment, and nobody quarrels with his right to be anxious about the future of that industry. He should realise that £600 million per year is spent on drink. We have 75,000 alcoholics whose hospital treatment costs £100 million in an effort to rehabilitate them. This is the way I would measure this matter. I do not see the tax on drink as a penal tax, and I am not anti-drink. I do not mind anybody enjoying a social drink or a night out, but I am aware of the problems of alcoholism and their effect on families, on children, on broken homes and broken marriages. This must be spelled out.
Just because an increase of 2p or 3p is put on the price of beer it is not good enough to say here that hundreds of people will lose their jobs. If you wanted to buy a public house or a licensed premises at the moment, it would cost you a fair penny. That does not indicate that there is a nose dive in the drink trade. Quite the reverse. Long ago young people went to the pictures or went out courting. Now they go down to the local. The whole pattern of life is changing. There is nothing wrong with drink in itself, but there is a lot wrong with drinking to excess. The figures I have quoted and the problems appertaining to them must indicate to any right-thinking person that something must be done about this problem. The higher price of drink will not make any substantial difference in the amount of drink taken.
I listened with interest to Deputy Dukes talking about the removal of VAT from books. It is astonishing how people can look for problems where none exist. The Minister for Finance is removing VAT from books, which I am sure all parents and the printing industry were seeking. Instead of welcoming this measure and saying how badly needed it is, some Deputies are now trying to pick holes in it. The Minister said that, if there are any problems, it is a matter for the EEC to take us to court. The amount involved is £2½ million only, and we are talking in terms of a budget of billions. Deputy Dukes should accept the Minister's assurance that they can take us to court if they want to. I do not think they will, because the sum involved is small. We will have to face up to it if it comes to that.
I welcome the extra £2½ million for the recruitment of extra gardaí. Money is badly needed for that purpose. Last May interviews were held for the recruitment of 300 gardaí, which I think is all Templemore holds. They did not go into Templemore until last February. During that time 150 gardaí retired so, in actual fact, only 150 gardaí were recruited for the year. They are still in Templemore. At the moment, because of the crime rate, the question of foot patrols is on everybody's mind. Vigilante committees are being set up, and I do not agree with them. Military barracks should be used to train police. There are many military barracks in the city and throughout the country which could cater adequately for that purpose.
There should be an input of 3,000 extra gardaí. We in Dublin Corporation asked for 1,000 extra gardaí for this city alone to combat the crime wave, to restore foot patrols to the city and to protect the aged and everybody else going about their business. Recently there was an upsurge in attacks on old people in their flats in the corporation areas. This has been a cause of great alarm. I want to see a police presence. I want to see foot patrols brought back into the various areas. I want more Garda barracks built in the big housing estates which house 20,000, 30,000 or 40,000 people in County Dublin and throughout the country. I want a police presence in all those areas.
This budget goes a long way towards dealing with the present day problems. A continuation of the Coalition policy of doom and gloom and cutbacks would raise the figure of 147,000 unemployed to a higher figure. It has never been the policy of a Fianna Fáil Government to cut back. We are the party of job creation. We believe in our youth. We believe that, given the chance, the people have the initiative to look after themselves. We believe in the building trade. The massive injection we are putting into that trade will prove to be a job-creating mechanism.
Having looked at the Coalition budget which did not get through, anyone who is not satisfied with this budget is failing in his duty to himself and his colleagues. I congratulate the Minister. I hope he will be able to use this budget to put our economy on the move again. I congratulate him on the efforts he has made. This is a good start. I welcome it. I hope this policy will continue to be implemented. I do not subscribe to the policy of the Opposition speakers. I cannot understand how any Labour Minister or Deputy could sit around the Cabinet table and vote for a budget that abolished food subsidies, increasing the price of a bottle of milk by 5p, and the price of a clothing, and masquerade as a socialist party. That is not acceptable to me.
Deputy V. Brady rose.
Debate adjourned.